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Author: 


Water  Power 
Development  Association 

Title: 

Facts  about  water  power 


Place: 


[  N  e  w  Yo  r  k] 


Date: 


[1916] 


COLUMBIA  UNIVERSITY  LIBRARIES 
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Facts  about  v/ater  povrer,  shov/ing  the  extent  of 
this  natural  resource  in  the  United  States,  the 
limited  present  development  especially  at  sites 
where  federal  permits  arc  required,  and  the  de- 
mand for  further  devolopmont  under  adequate  lavrs, 
(Vfith  an  analysis  of  tho  "Morrill"  report  on 
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316,  64th  Congress,  1st  session^  1916)  Prepared 
by  tho  Executive  committee  of  tho  Water  povTer 
development  association  •..  H.  Vf,  Hand, chairman, 
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FACTS  ABOUT  WATER  POWER 

Showing  the  Extent  of  this  Natural  Resource  in  the  United 

States,  the  Limited  Present  Development  Especially  at  Sites 

Where  Federal  Permits  are  Required,  and^he  Demand 

for  Further  Development  under  Adequat|(,  Laws 


(With  an  Analysis  of  the  ••Merrill**  Report  on  Electric  Power  Develop- 
ment, Senate  Document  No.  316,  64th  Congress,  1st  Session,  1916) 


*  pi 

i 


PREPARED  BY 

THE  EXECUTIVE  COMMITTEE  OF  THE  WATER 
POWER  DEVELOPMENT  ASSOCIATION 

Munsey  Butldina,  Washington,  D.  C. 


M 


ts 


H.  W.  HAND,  Chairman  of  Executive  Committee 
(Vice  President  and  General  Manager  of  I.  P.  Morris  &  Co.,  Philadelphia,  Pa.) 

CALVERT  TOWNLEY.  Vice  Chairman 
tant  to  the  President.  Westinghouse  Electric  Sc  Manufaccurine  Company.  New  York.  N.  Y.> 

W.  W.  NICHOLS.  Treasurer 
(Assistant  to  Chairman,  AUis-Chalmers  Manufacturins  Co..  New  York.  N.  Y.) 

CHESTER  W.  LARNER 
(Hydraolic  Ensineer.  Weliman-Seaver-MorKan  Co.,  Cleveland.  Ohio) 

J.  E.  WAY 
<R.  Thomas  &  Sons  Co.,  East  Liverpool.  Ohio) 


nnsisTj 


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LIBRARY 


School  of  Business 


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FACTS  ABOUT  WATER  POWER 

Showing  the  Extent  of  this  Natural  Resource  in  the  United 

States,  the  Limited  Present  Development  Especially  at  Sites 

Where  Federal  Permits  are  Required,  and  the  Demand 

for  Further  Development  Under  Adequate  Laws 


(With  an  Analysis  of  the  "Merrill"  Report  on  Electric  Power  Develop- 
ment«  Senate  Document  No.  316,  64th  Congress,  1st  Session,  1916) 


PREPARED  BY 


[ 


THE  EXECUTIVE  COMMITTEE  OF  THE  WATER 
POWER  DEVELOPMENT  ASSOCIATION 

Munsey  Building,  Washingrton,  D.  C. 


/  H.  W.  HAND,  Chairman  of  Executive  Committee 

(Vice  President  and  General  Manatser  of  I.  P.  Morris  &  Co.,  Philadelphia,  Pa.) 

CALVERT  TOWNLEY,  Vice  Chairman 
(Assistant  to  the  President.  Westinghouse  Electric  &  Manufacturing:  Comp'any,  New  York,  N.  Y.) 

W.  W.  NICHOLS,  Treasurer 
(Assistant  to  Chairman,  AllisrChalmers  Manufacturing  Co.,  New  York,  N.  Y.) 

CHESTER  W.  LARNER 
(Hydraulic  Ensineer,  Wellman-Seaver-Morgan  Co.,  Cleveland,  Ohio> 

J.  E.  WAY 
(R.  Thomas  &  Sons  Co.,  Eas^  Liverpool,  ph|o>      ,      ^ 


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In 


FACTS  ABOUT  WATER  POWER 

INTRODUCTION. 

In  February,  1915,  at  the  request  of  Senator  Borah 
of  Idaho  the  United  States  Senate  adopted  a  resolution 
(Senate  Resolution  No.  544)  as  follows: 

"Resolved,  That  the  Secretary  of  Agriculture 
be,  and  he  is  hereby,  directed  to  furnish  the  Senate 
with  all  information  in  his  possession  as  to  the 
ownership  and  control  of  the  water  power  sites  in 
the  United  States,  showing  what  proportion  of 
such  water  power  sites  is  in  private  ownership  and 
by  what  companies  and  corporations  such  sites  in 
private  ownership  are  owned  and  controlled,  what 
horse-power  has  been  developed,  and  what  pro- 
portion of  it  is  owned  and  controlled  by  such 
private  companies  and  corporations,  and  any  facts 
bearing  upon  the  question  as  to  the  existence  of  a 
monopoly  in  the  ownership  and  control  of  hydro- 
electric power  in  the  United  States." 

In  introducing  this  resolution  Senator  Borah  said: 

"Mr.  President,  this  Resolution  is  directed  to 
the  Secretary  of  Agriculture.  Ordinarily  it  would 
not  go  there;  but  I  am  informed  that  the  Bureau 
of  Forestry  is  in  possession  of  some  very  import- 
ant information  in  regard  to  this  matter  and  that 
that  Bureau  would  be  glad  to  furnish  the  informa- 
tion if  it  were  given  an  opportunity  to  do  so.  For 
that  reason  the  resolution  is  directed  to  the 
Secretary  of  Agriculture." 

Nearly  a  year  later,  on  January  17,  1916,  the  Sec- 
retary of  Agriculture  transmitted  a  report  to  the  Senate 
with  the  following  statement: 

"In  accordance  with  the  provisions  of  Senate 
resolution  No.  544,  passed  by  the  Sixty -third  Con- 
gress, third  session,  I  have  the  honor  to  transmit 
herewith  the  information  in  my  possession  as  to 


•  i   I  «  t     • 

•     ••      •      t.ai 


•    » 


the  ownership  and  control  of  the  water  power  sites 
in  the  United  States;     *     ♦     ♦". 

The  report  referred  to  in  the  Secretary's  letter  was 
ordered  to  be  printed  by  the  Senate  (Senate  Document 
No.  316,  64th  Congress,  1st  Session),  and  is  entitled 
*^Electric  Power  Development  in  the  United  States". 

The  report  is  in  three  parts,  two  of  them  voluminous 
and  containing  elaborate  tables  and  charts.  The  order  to 
print  was  given  by  the  Senate  February  8,  1916,  but  only 
Part  I  containing  summaries  and  conclusions  was  issued 
at  that  time.  These  summaries  and  conclusions  conse- 
quently received  wide  public  attention  before  their  origin 
and  bases  could  be  subjected  to  critical  examination. 

Mr.  Gilford  Pinchot  immediatelv  sent  a  letter  to  the 
newspapers  of  the  countrj^  quoting  the  report  in  support 
of  his  opposition  to  pending  water  power  legislation  and 
saying : 

"The  water  power  men  charge  that  conservation 
hampers  development.  The  admirable  recent  re- 
port of  Secretary  Houston  (Merrill)  shows,  on  the 
contrary,  that  the  most  rapid  development  is  in 
the  National  forests,  where  conservation  is  best 
enforced.  On  the  other  hand,  120  public  service 
corporations  own  and  are  holding  undeveloped 
and  out  of  use  an  amount  of  water  power  equal 
to  four-fifths  of  all  there  is  developed  and  in  use 
by.  all  the  public  service  corporations  in  the  whole 
United  States." 

A  newspaper  summary  issued  from  the  Agricultural 
Department  (January  20,  1916)  after  describing  the  re- 
port as  "presenting  in  far  greater  detail  than  has  ever 
been  attempted  before  an  exhaustive  analysis  of  the 
general  power  situation",  said : 

"The  report  states  that  18  corporations  control 
more  than  one-half  of  the  total  water  power  used 


in  public-service  operations  in  the  United  States, 
while  six  corporations  control  more  than  one- 
fourth.  The  character  of  this  control  is  definite 
and  complete.  Further  relationships  through 
common  directors  and  principal  officers  are  dis- 
closed and  tabulated." 

Numerous  comments  appeared  in  the  newspapers  of 
the  country  showing  the  misleading  effect  of  the  publi- 
cation of  Part  I  without  accompanying  data;  the  fol- 
lowing is  a  sample : 

"The  report  shows  that  156  monopolies  are 
in  the  field,  and  that  these  are  related.  There  was 
in  1912  an  apparent  investment  in  commercial 
water  power  stations  of  $2,000,000,000,  or  |301 
a  horse-power.  The  municipal  investment  is 
$77,000,000,  or  $138  a  horse-power.  The  inference 
is  that  the  private  monopolies  are  over-capitalized. 
In  1902,  11.2  per  cent,  of  the  water  power  de- 
veloped in  this  country  was  in  commercial  stations ; 
in  1912,  it  was  23.8  per  cent.,  or  more  than  double. 
In  1912  commercial  interests  controlled  50  per 
cent,  of  the  developed  water  power  in  the  mountain 
states  and  54  per  cent,  in  the  Pacific  states.  Three 
years  later  their  control  in  these  two  sections  was 
90  per  cent."  (Indianapolis  News,  February  25, 
1916). 


Part  II  containing  the  statistical  showing  of  the  re- 
port did  not  come  from  the  printer  until  May,  and  Part 
III  containing  tables  and  charts  dealing  with  interrela- 
tions between  public  service  corporations  was  not  publicly 
issued  until  the  middle  of  August.  Not  until  the  latter 
date  therefore  was  it  possible  to  examine  the  report  as  a 
whole  and  estimate  its  trustworthiness  and  authority. 
Such  an  examination  has  now  been  made,  and  the  result 
appears  in  the  following  pages. 


The  report  has  come  to  be  known  as  the  "Merrill 
report"  because  it  was  prepared  by  and  rests  on  the  sole 
authority  of  Mr.  O.  C.  Merrill,  Chief  Engineer  of  the 
Forest  Service.  This  is  made  clear  in  the  letters  of  trans- 
mittal. The  Forest  Service  is  the  bureau  in  the  Agri- 
cultural Department  referred  to  by  Senator  Borah:  it 
has  to  do  with  water  power  matters  because  of  applica- 
tions for  the  use  of  forest  lands  for  water  power  pur- 
poses. Mr.  Gifford  Pinchot  was  formerly  head  of  this 
service,  and  Mr.  Merrill's  appointment  as  Chief  Engineer 
was  made  upon  his  recommendation.  As  Chief  Engineer 
of  the  Forest  Service  Mr.  ^Merrill  has  charge  of  a  con- 
siderable corps  of  engineers  and  assistants  whose  duty  it 
is  to  pass  upon  applications  for  water  power  permits  on 
the  forest  lands.  Pending  water  power  legislation,  op- 
posed by  Mr.  Pinchot  and  Mr.  Merrill,  would  transfer  this 
authority  to  the  Interior  Department. 

The  report  makes  no  pretense  of  containing  original 
research,  except  an  effort  to  trace  water  power  develop- 
ment since  1912,  the  latest  year  covered  by  the  Census 
Bureau  reports.  For  the  most  part  the  Merrill  report 
consists  of  deductions  and  arguments  based  upon  statis- 
tical data  appearing  in  Census  Bureau  reports  and  in 
leading  unofficial  manuals  containing  information  as  to 
the  organization  of  corporations  and  public  service  and 
banking  concerns. 

Although  the  report  contains  1,069  pages  besides 
numerous  plates,  charts,  etc.,  accompanying  the  text  or 
separately  enclosed,  it  does  not  directly  ansuoer  the  ques- 
tions propounded  hy  the  Senate,  nor  does  it  even  in- 
directly answer  the  inquiries  naturally  involved  in 
Senator  Borah's  resolution. 

The  report  does  not  in  fact  purport  to  deal  exclusively 
with  the  subject  covered  by  the  resolution,  namely  water 
power  sites  and  hydroelectric  development.     The  report 


5 


is  entitled  "Electric  Power  Development  in  the  United 
States",  and  is  described  by  its  author  (Part  I,  page 
11)  as  follows: 

"The  report  deals  with  the  amount  of  de- 
veloped power  in  all  the  States,  whether  water 
power,  steam  power,  or  gas  power,  and  whether 
developed  by  public  service  corporations,  by  in- 
dustrial corporations,  or  by  municipalities.  The 
inquiry  has  been  made  thus  extensive  because  only 
by  such  means  can  a  clear  understanding  be  had  of 
the  relation  of  water  power  development  to  gen- 
eral power  development  and  of  the  movement  to- 
ward concentration  of  control  in  the  electric-power 
industry." 

This  statement  of  itself  shows  that  the  report  is 
not  responsive  to  the  Senate  resolution.  It  deals  with 
steam  power  and  gas  power  besides  water  power,  although 
the  Senate  asked  for  no  information  regarding  these. 
Only  a  small  portion  of  the  report  deals  with  water  power 
alone.  The  reason  given  for  including  steam  power  and 
gas  power  is  stated  to  be  that  only  by  such  means  can  a 
clear  understanding  be  had  of  the  relation  of  water  power 
development  to  general  power  development  (concerning 
which  relation  the  Senate  made  no  inquiry)  and  of  the 
movement  towards  concentration  of  control  in  the  elec- 
trical power  industry  (concerning  which  also  the  Senate 
made  no  inquiry  whatsoever). 

A  critical  examination  of  the  report  must  accordingly 
inquire  whether  the  Senate  resolution  could  not  have 
been  answered  directly  and  simply;  and  also  whether  or 
not  the  author's  additional  and  voluntary  analysis  of 
the  electrical  industry  is  accurate  and  reliable. 

In  the  following  pages  it  will  be  made  clear  that  the 
questions  asked  by  the  Senate  are  in  fact  pertinent  and 
important,  that  they  could  have  been  answered  directly 
and    simply,  and  that  truthful    and    accurate    answers 


I! 


6 


I' 


would  have  thrown  mach  light  upon  the  subject  of  water 
power  legislation  with  which  Congress  is  and  for  a  long 
time  has  been  endeavoring  to  deal.  It  will  also  be  shown 
that  the  report's  analysis  of  the  electrical  industry  is  not 
accurate  and  reliable,  but  is  on  the  contrary-  exceedingly 
inaccurate  and  misleading.  It  will  be  made  clear  also 
that  both  in  his  indirect  response  to  the  Senate  resolu- 
tion and  in  his  voluntary  analysis  of  the  electrical  indus- 
try Mr.  Merrill  has  tinged  his  report,  official  as  it  is,  with 
a  very  evident  bias  in  favor  of  certain  well  known  views 
held  by  Mr.  Pinch ot  and  other  opponents  of  pending 
water  power  legislation,  as  well  as  with  a  very  evident 
prejudice  against  the  modern  system  of  organization  and 
operation  of  the  public  utility  corporations  of  the 
countrv. 

It  is  fully  realized  that  this  is  a  serious  criticism  of 
an  official  report,  not  to  be  uttered  unless  sustained ;  but 
it  is  equally  true  that  nothing  can  be  more  damaging  than 
to  permit  biased  and  prejudiced  assertions  and  faulty 
deductions  to  be  spread  broadcast  with  all  the  authority 
accorded  to  official  statistical  utterances  without  at 
least  pointing  out  their  errors  and  submitting  to  impar- 
tial public  judgment  the  result  of  their  critical  examina- 
tion by  competent  persons. 

The  development  of  the  water  power  resources  of  the 
country  has  been  almost  at  a  standstill  for  a  long  time, 
although  American  engineers  have  brought  to  a  high 
state  of  efficiency  the  art  of  hydroelectric  generation  and 
transmission ;  although  American  financiers  and  business 
men  are  willing  to  devote  an  enormous  volume  of  capital 
to  such  development;  and  although  the  yet  undeveloped 
water  power  resources  of  the  country  are  reliably  esti- 
mated at  more  than  50,000,000  horse-power  capacity. 

The  explanation  is  that  existing  development  has 
very   largely  exhausted  the  water  power  opportunities 


commercially  available  at  sites  not  requiring  Federal 
permits.  Water  power  development  in  navigable 
streams  and  on  the  public  lands  of  the  United  States 
require  such  permits  in  every  case.  Federal  laws  au- 
thorizing such  permits  either  do  not  exist,  as  in  the  case 
of  navigable  streams,  or  are  unsuitable  and  inadequate 
as  a  basis  for  large  investment,  as  in  the  case  of  water 
power  sites  on  the  public  lands. 

The  passage  by  Congress  of  laws  permitting,  under 
suitable  safeguards,  the  development  of  available  water 
power  at  sites  requiring  Federal  permits  would  result: 

First:  In  the  construction  under  Government 
supervision  but  without  cost  to  the  Government 
of  navigation  facilities  vastly  improving  water- 
ways now  used  for  transportation  and  opening  up 
for  navigation  thousands  of  miles  of  waterways 
not  now  navigable. 

Second:  In  creating  in  connection  with  such 
navigation  improvements  an  enormous  total  of 
hydroelectric  power  to  be  used  in  making  nitrate 
fertilizer  to  supply  at  low  cost  the  farmers  of  the 
South  and  East. 

Third:  In  beginning  great  construction  works 
which  would  use  capital  now  idle  and  keep  it  in 
this  country  against  the  competitive  demands  of 
European  countries  rebuilding  at  the  close  of  the 
war,  and  against  further  competition  from  at- 
tractive investment  opportunities  in  South  Amer- 
ica and  elsewhere. 

Fourth:  In  beginning  great  construction 
works  which  would  employ  many  thousand  men, 
skilled  and  unskilled. 

Fifth:  In  the  development  in  connection  with 
such  navigation  improvements  of  hydroelectric 
power  for  the  operation  of  railroads  by  electricity 
with  added  comfort  to  passengers  and  enormous 
savings  of  labor,  fuel  and  operating  expense, 
thereby  vastly  improving  the  financial  situation 


8 


9 


; 


i» 


of  the  railroads  without  increasing  the  expense  of 
shippers. 

Sixth:  In  enabling  this  country  to  take  the 
lead  in  producing  "electric  steel"  at  low  cost  and 
in  enormous  quantities,  "electric  steel"  bringing 
into  use  low  grades  of  ore  heretofore  econom- 
ically excluded. 

Seventh:  In  irrigation  developments  depend- 
ent upon  cheap  power  for  pumping  purposes  and 
upon  water  storage,  both  supplied  in  connection 
with  navigation  improvements. 

Eighth:  In  preventing  floods  through  regula- 
tion of  stream  flow  by  reservoirs  and  other  navi- 
gation improvements  constructed  without  cost  to 
the  government. 

Ninth:  In  retaining  in  the  United  States  the 
energy,  skill  and  capital  of  Americans  who,  if 
restrictive  laws  continue,  will  be  forced,  as  some 
already  have  been,  to  seek  and  develop  hydroelec- 
tric power  for  their  uses  in  Canada,  Norway  and 
other  foreign  countries. 

Congress  has  not  failed  to  realize  the  importance  of 
this  matter,  and  for  years  has  been  endeavoring  to  deal 
with  it.  Lack  of  full  information  has  been  one  of  the 
prime  difficulties. 

Senator  Borah's  resolution  asked  for  facts  requisite 
to  an  adequate  understanding  of  the  subject.  The  failure 
of  those  to  whom  the  inquiry  was  directed  to  reply 
directly  and  simply  is,  in  view  of  these  circumstances, 
exceedingly  unfortunate. 

The  information  asked  for  has  been  in  a  large  degree 
secured  from  competent  engineering  authority  and  is 
supplied  in  the  following  pages.  It  is  here  briefly  sum- 
marized as  follows: 

1.  The  Senate  inquired:  What  proportion  of  the 
water  power  sites  in  this  country  is  in  private  owner- 
ship? 


Answer:  The  total  capacity  of  all  water  power  sites 
in  this  country  developed  and  undeveloped  (without  stor- 
age) is  estimated  by  competent  engineering  authority  at 
60,700,000  water  horse-power.  Of  this  total  capacity 
46,900,000  water  horse-power  (developed  and  undevel- 
oped) are  at  sites  requiring  Federal  permits  and  there- 
fore under  public  control,  while  13,800,000  water  horse- 
power, developed  and  undeveloped,  are  at  sites  privately 
owned  and  not  requiring  Federal  permits  for  develop- 
ment. The  proportion  of  such  sites  in  absolute  private 
ownership  is  therefore  22.8  per  cent,  of  all  sites.  Devel- 
opment has  how^ever  already  taken  place  at  sites  requir- 
ing Federal  permits  to  the  extent  of  1,835,903  water 
horse-power.  The  permits  issued  have  in  a  large  meas- 
ure retained  public  control,  but  if  all  sites  developed 
with  the  use  of  private  capital  are  regarded  as  having 
passed  to  private  ownership  and  control  the  total  capac- 
ity of  sites  in  private  control,  developed  and  undevel- 
oped, would  be  15,635,903  or  25.7  per  cent,  of  all  avail- 
able sites.  This  is  the  highest  possible  estimate  of  water 
power  sites  in  private  control,  and  shows  that  nearly 
three-fourths  of  available  sites  developed  and  undevel- 
oped are  in  public  control,  a  fact  not  brought  out  by  Mr. 
Merrill  but  having  an  important  bearing  on  the  question 
of  existing  or  possible  water  power  monopoly. 

2.  The  Senate  inquired:  By  what  companies  and 
corporations  are  such  sites  in  private  ownership  owned 
and  controlled? 

Answer:  A  list  of  such  companies  would  be  of  great 
length,  showing  great  diversity  of  ownership  and  con- 
trol. It  would  include  innumerable  riparian  owners, 
owners  of  mines,  quarries  and  manufacturing  plants 
throughout  the  country  as  well  as  owners  of  public  util- 
ity enterprises.    The  report  names  226  separate  and  dis- 


10 


11 


i: 

I 


i 


tinct  companies  which  it  says  control  4,470,570  developed 
water  horse-power,  or  an  average  of  19,781  water  horse- 
power each.  This  list  alone  shows  diversity  of  ownership. 
Yet  it  accounts  for  less  than  a  third  of  the  water  power 
sites  developed  and  undeveloped  held  in  private  owner- 
ship. To  answer  the  Senate's  question  fully  there  would 
have  to  be  added  to  the  long  list  given  in  the  report  the 
much  longer  list  of  riparians  of  all  sorts,  showing  as 
stated  great  diversity  of  ownership  of  water  power  sites 
in  private  ownership  developed  and  undeveloped.  This 
fact  is  not  brought  out  by  the  report  though  it  is  ex- 
ceedingly significant  as  bearing  upon  the  question  of 
existing  or  threatened  power  monopoly. 

3.  The  Senate  inquired :  What  water  horse-power  has 
been  developed. 

Answer:  Mr.  Merrill  takes  from  the  census  of  1912 
and  certain  other  data  the  estimate  of  4,870,820  water 
horse-power  as  the  total  then  developed  and  says  that  a 
census  under  his  direction  (chiefly  from  manuals 
issued  annually  by  leading  private  authorities)  shows 
an  additional  1,668,114  water  horse-power  developed 
down  to  January  1,  1916  (Part  I,  page  12).  The 
total  is  6,538,434  water  horse-power.  The  Avater 
power  development  listed  by  Mr.  Merrill  in  his 
various  tables  amounts  to  only  5,321,699  water  horse- 
power (Part  II,  page  66,  Table  No.  53),  and  this  is 
the  total  he  deals  with  in  most  of  his  comparisons.  No 
recent  official  figures  of  present  water  power  develop- 
ment are  available  other  than  those  presented  by  the 
report.  It  is  probable  that  a  complete  census  of  present 
water  power  development  would  show  a  considerable 
aggregate  of  additional  water  horse-power  developed  in 
small  plants  at  private  sites  not  requiring  Federal  per- 


mits and  not  listed  in  the  Merrill  report.  The  extent 
of  development  in  small  private  plants  could  only 
be  discovered  by  such  a  census.  In  the  present  discussion 
it  has  therefore  been  necessary  to  use  the  development 
figures  presented  by  Mr.  Merrill  although  the  total  devel- 
opment in  the  country  including  small  private  plants  is 
doubtless  somewhat  larger  than  he  indicates.  As  will 
presently  be  shown,  the  most  significant  fact  regarding 
water  power  development  in  this  country  is  the  relatively 
large  development  which  has  taken  place  at  sites  not 
requiring  Federal  permits  compared  with  the  relatively 
slight  development  at  sites  requiring  Federal  permits.  If 
complete  development  figures  including  the  small  private 
plants  were  available  the  contrast  between  the  two  classes 
of  development  would  be  even  more  striking. 

Mr.  Merrill's  estimate  of  6,538,434  water  horse-power 
developed  shows  a  present  development  of  10.7  per  cent, 
of  the  available  water  power.  The  total  listed  in  his 
tables  shows  a  development  of  only  8.8  per  cent,  of  the 
available  water  horse-power.  Either  figure  is  eloquent 
of  the  failure  of  adequate  development  under  existing 
laws. 

This  failure  is  still  more  striking  when  existing  de- 
velopment is  examined  under  proper  classification.  Of 
existing  developments  listed  in  the  report  nearly  3,500,000 
water  horse-power  have  been  developed  at  sites  not 
requiring  Federal  permits,  while  less  than  2,000,000 
water  horse-power  have  been  developed  at  sites  requiring 
government  permits.  In  other  words,  nearly  twice  as 
extensive  development  has  taken  place  at  sites  not  re- 
quiring government  permits  as  compared  with  develop- 
ment at  sites  requiring  such  permits,  in  spite  of  the  fact 
that  the  available  water  power  at  sites  requiring  such 
permits  is  46,900,000  water  horse-power  (developed  and 
undeveloped)    as  against  only  13,800,000  water  horse- 


12 


18 


I 


I' 
I 


power  (developed  and  undeveloped)  available  at  sites  not 
requiring  such  permits.  The  available  water  power  at 
sites  requiring  Federal  permits  is  77.2  per  cent,  of  the 
entire  water  power  available,  but  only  34.4  per  cent,  of 
existing  development  has  taken  place  at  such  sites.  On 
the  other  hand,  the  available  water  power  at  sites  not 
requiring  Federal  permits  is  only  22.8  per  cent,  of  all 
water  power  available,  yet  65.6  per  cent,  of  existing  de- 
velopment has  taken  place  at  such  sites.  Again,  only  3.9 
per  cent,  of  the  water  power  available  at  sites  requiring 
Federal  permits  has  been  developed  while  25.2  per  cent, 
of  the  water  power  available  at  sites  not  requiring  such 
permits  has  been  developed.  In  the  western  states  where 
water  power  development  has  been  most  extensive  less 
than  two  per  cent,  of  the  available  water  horse-power  at 
sites  requiring  Federal  permits  has  been  developed,  while 
more  than  60  per  cent,  of  the  water  horse-power  available 
at  sites  not  requiring  Federal  permits  is  already  being 
utilized.  The  report  does  not  bring  out  these  facts, 
though  they  place  beyond  controversy  the  fact  that  water 
power  development  in  this  country  has  been  held  back 
and  paralyzed  by  lack  of  Federal  authority  under  the 
laws  to  grant  such  permits. 

4.  The  Senate  inquired :  What  proportion  of  existing 
developed  water  power  is  owned  and  controlled  by  pri- 
vate companies? 

Answer:  Almost  all  the  water  power  development 
listed  in  the  report  has  been  the  work  of  private  com- 
panies and  corporations.  Much  is  said  by  Mr.  Pinchot 
and  his  associates  of  the  desirability  of  water  power  de- 
velopment by  municipalities  and  other  public  agencies, 
but  the  Merrill  report  itself  shows  that  less  than  three  per 
cent,  of  existing  water  power  development  is  due  to  such 
public  agencies.     This  is  extremely  important  and  sig- 


nificant, as  showing  the  necessity  of  bringing  in  private 
capital  if  real  and  extensive  development  of  water  powers 
are  desired. 

5.  The  Senate  asked  for:  Any  facts  bearing  upon  the 
question  as  to  the  existence  of  a  monopoly  in  the  owner- 
sliip  and  control  of  hydroelectric  power  in  the  United 
States. 

Answer :  The  facts  bearing  upon  his  question  indicate 
that  no  such  monopoly  exists  and  none  is  threatened.  Of 
the  60,700,000  available  water  horse-power  in  the  United 
States  at  the  highest  estimate  (that  of  Mr.  Merrill)  only 
6,538,434  water  horse-power  have  been  developed,  10.7 
per  cent.  If  the  entire  development  were  in  the  owner- 
sliip  of  a  single  corporation  it  would  not  constitute  a 
monopoly  of  available  water  power  or  anything  approach- 
ing such  a  monopoly.  Moreover,  as  will  presently  be 
shown,  the  ownership  and  control  of  the  developed  water 
power  of  the  country  is  widely  distributed. 

Mr.  Merrill  in  his  search  for  evidences  of  water  power 
monopoly  presents  a  list  of  18  corporations  which  lie  says 
control  51  per  cent,  of  the  hydroelectric  power  used  in 
public  service  operations.  His  estimate  of  the  amount  of 
hydroelectric  power  used  in  public  service  operations  is 
4,609,787  water  horse-power.  His  assertion  therefore  is 
that  18  public  service  corporations  control  2,350,991 
water  horse-power  out  of  6,538,434  developed  water  horse- 
power or  a  little  over  35  per  cent.  If  the  18  corporations 
he  names  were  owned  and  controlled  by  a  single  interest 
it  would  not  constitute  a  monopoly  of  existing  developed 
water  power  in  any  accepted  sense  of  the  term,  especially 
in  view  of  the  enormous  available  water  power  open  to 
development  by  competitors  whenever  the  government 
chooses  to  allow  such  development.  Moreover,  the  18 
corporations  are  large,  independent  concerns,  which  have 


14 


developed  water  powers  for  use  in  the  course  of  tbeir 
regular  public  utility  service  in  widely  separated  sections 
of  the  country.  They  are  the  great  public  utility  hold- 
ing companies,  furnishing  light,  power  and  street  railway 
transportation  in  the  populous  centers.  While  they  are 
not  competitors  in  service  of  given  localities  they  are 
active  competitors  in  securing  the  location  of  power  using 
industries  near  their  plants  and  also  in  the  purchase  and 
management  of  local  utility  enterprises  under  the  modern 
conditions  surrounding  the  public  utility  business. 

Mr.  Merrill,  in  his  search  for  evidences  of  water  power 
monopoly,  gives  Stone  &  Webster  as  the  concern  "con- 
trolling" more  water  power  than  any  other  corporation, 
but  he  only  ascribes  to  Stone  &  Webster  the  control  of 
340,211  water  horse-power,  or  5.2  per  cent,  of  the  amount 
he  says  has  been  developed.  This,  of  course,  does  not 
even  approach  monopoly. 

These  estimates  bear  on  the  question  of  hydroelectric 
monopoly  by  showing  it  does  not  exist. 

There  are  other  facts  leading  to  the  same  conclusion. 
It  is  well  known  that  the  great  present  demand  for 
authority  to  develop  water  power  does  not  come  from 
public  utility  concerns  alone  or  even  principally.  Hydro- 
electric development  is  being  sought  in  order  to  produce 
power  with  which  to  operate  railroads  now  operated  by 
steam,  to  make  electric  steel,  to  use  in  the  electro-chemical 
industries,  to  make  fertilizer  by  means  of  nitrate  fixation 
from  the  atmosphere.  The  tendency  is  toward  diversity 
of  use  and  ownership,  not  toward  monopoly  or  concen- 
tration of  control.  The  report  does  not  mention  these 
facts,  but  they  are  most  significant  as  bearing  upon  the 
question  of  hydroelectric  monopoly.  They  show  that  such 
monopoly  not  only  does  not  exist,  but  that  the  tendency 
is  in  exactly  the  opposite  direction. 


15 


The  foregoing  deals  with  the  Senate  resolution  and 
the  Merrill  report  so  far  as  they  relate  exclusively  to 
water  power.  It  has  been  shown  that  the  Senate  in- 
quiries were  based  on  a  real  need  of  information,  that 
they  were  pertinent  to  an  existing  controversy  of  great 
moment  to  the  country,  that  they  could  have  been  an- 
swered directly  and  simply,  and  that  truthful  and  ac- 
curate answers  would  have  cleared  up  existing  doubts, 
informed  the  Senate  and  the  country  authoritatively  of 
the  stagnation  of  water  power  development  under  exist- 
ing laws,  dispelled  the  fear  of  stimulating  or  creating 
water  power  monopoly  and  opened  the  Avay  to  beneficial 
development.  Facts  and  figures  sustaining  the  answers 
here  given  are  set  forth  in  further  detail  under  appro- 
priate headings  in  the  succeeding  pages. 

The  report  however  does  not  deal  with  water  powers 
exclusively  or  even  chiefly.  It  contains  a  supposed 
analysis  of  the  electrical  industry  and  fully  eighty-five 
per  cent,  of  its  text  deals  not  with  water  power,  but 
as  the  author  states  with  "all  power  all  uses". 

Careful  examination  of  the  report  as  a  whole  forces 
the  conclusion  that  the  report  not  only  fails  to  answer 
the  Senate  resolutions  but  contains,  in  fact,  an  elaborate 
effort  to  support  certain  views  urged  by  opponents  of 
pending  water  power  legislation,  particularly  the  fre- 
quently expressed  views  of  Mr.  Gifford  Pinchot,  formerly 
Chief  Forester,  who  has  been  actively  at  work  during  the 
present  Congress  to  defeat  pending  water  power  legisla- 
tion. 

The  Senate  asked  for  information  and  received  an 
argument;  in  no  other  way  is  it  possible  to  explain  the 
extraordinary  manner  in  which  Mr.  Merrill  has  dealt 
with  the  impartial  statistical  information  contained  in 
the  Census  reports,  garbled  portions  of  which  he  has. 
chosen   for  presentation;  his  curious  extension  of  the 


16 


17 


19    ! 


f 


scope  of  his  inquiry  beyond  that  covered  by  the  resolu- 
tion; his  rapid  and  confusing  changes  from  comparison 
with  what  he  terms  "all  power  all  uses"  to  comparisons 
with  power  used  in  public  service  operations  only;  his 
wholly  misleading  and  unscientific  use  of  percentage  cal- 
culations; and  his  apparent  willingness  to  base  his  sum- 
maries and  conclusions  upon  data  which  he  himself  de- 
scribes as  incomplete  and  liable  to  error. 

Mr.  Pinchot  for  instance  has  repeatedly  insisted  that 
water  power  development  at  sites  requiring  government 
permits  has  proceeded  in  a  satisfactory  manner  under 
existing  laws.  The  report  labors  to  support  this  con- 
tention although  the  fact,  as  has  been  indicated  and  as 
the  data  hereafter  presented  conclusively  show,  is  exactly 
the  contrary. 

Mr.  Pinchot  continually  declares  that  a  "water  power 
trust"  either  exists  or  is  threatened.  The  report  is 
skillfully  arranged  to  present  an  impression  of  great 
"concentration  of  power  control"  although,  even  to  seem 
to  support  this  theory,  dealing  with  water  powers  alone 
had  to  be  abandoned  and  a  vast  volume  of  the  report 
given  over  to  statements  regarding  power  development  in 
general  and  the  listing  of  many  companies  having  no  con- 
nection with  water  power  development  of  any  kind  or 
nature. 

Mr.  Pinchot  again  has  repeatedly  urged  that  govern- 
ment or  municipal  ownership  and  operation  of  water 
powers  should  be  preferred  to  development  and  operation 
by  the  use  of  private  capital.  The  report  contains  a 
"study"  of  municipal  operation  which  labors  lo  exhibit 
it  in  a  favorable  light,  although  to  do  so  it  was  necessary 
to  "study"  certain  portions  of  official  reports  on  the  sub- 
ject meanwhile  ignoring  the  remainder  of  the  same  reports 
which  contained  facts  and  figures  less  favorable  to  munic- 
ipal operation. 


In  the  following  pages  the  data  upon  which  the  fore- 
going answers  to  the  Senate  resolution  are  based  will  be 
presented  under  appropriate  headings.  Thereafter  the 
Merrill  report  will  be  examined  as  a  whole,  its  principal 
arguments  analyzed,  some  of  its  errors  of  method  and 
fact  pointed  out,  and  in  addition  as  far  as  may  be  pos- 
sible a  clear  statement  will  be  made  of  the  growth,  organi- 
zation and  financial  and  public  relations  of  the  public 
utility  business  a  distorted  view  of  which  has  been 
voluntarily  included  in  the  report. 

Briefly  stated  the  latter  examination  will  show  that 
Mr.  Merrill  has  utilized  a  major  portion  of  his  report  in 
presenting  in  a  false  light  with  frequent  and  glaring 
errors,  the  public  utility  business  as  modern  demand  for 
service  has  required  it  to  be  organized.  The  rapidity  of 
its  growth,  the  extent  of  service  rendered,  the  facilities 
created,  the  financial  achievements  which  have  made  such 
•growth  and  service  possible,  the  efforts  of  some  of  its 
leaders  to  develop  a  new  source  of  power  in  spite  of  diffi- 
culties to  use  in  public  service,  are  all  set  forth  as 
evidences  of  "concentration  of  power  control".  Mr. 
Merrill  shows  his  prejudice  against  public  utility 
concerns  by  inserting  in  his  report  unsupported  state- 
ments involving  tlie  good  faith  of  those  who  conduct  the 
great  electrical  industries  of  the  country;  he  concludes 
that  electric  plants  municipally  operated  are  "more  con- 
servatively financed"  though  his  own  figures  show  that 
they  are  extravagantly  operated;  he  makes  absurd  de- 
ductions concerning  the  profits  of  electrical  enterprises 
and  by  calculating  annual  earnings  per  horse-power 
without  regard  to  load  factor  reaches  a  maximum  of 
futility  and  error. 

The  facts  are  that  modern  demand  for  service  has 
been  met  in  the  public  utility  business  by  modern  methods 
of  efficiency  in  organization,  financial  management  and 


18 


physical  operation.  Inefficient  operation  with  insufficient 
capital  has  been  largely  replaced  by  expert  management 
and  capital  for  continuing  improvement  and  extension 
of  service  has  been  secured  by  so  organizing  the  business 
as  to  permit  it  to  compete  in  the  money  markets  for  its 
portion  of  the  investment  funds  of  this  and  other 
countries.  By  this  means  more  than  ?!8,000,()00,000  of 
investment  have  been  brought  to  the  service  of  the  people 
of  the  cities  and  suburban  districts  of  the  country.  By 
this  means  not  only  has  service  been  created,  improved 
and  extended,  but  also  its  cost  to  the  consumer  has  been 
constantly  reduced.  Meanwhile  the  return  to  the  in- 
vestor in  public  utility  enterprises  has  been  moderate- 
sometimes  greatly  inadequate— and  all  dangers  from 
monopoly  or  "concentration  of  controP'  have  been 
obliterated  by  public  regulation  of  rates  and  service  now 
in  vogue  in  nearly  all  the  states. 

It  is  hoped  that  those  who  desire  to  know  the  truth 
about  water  power  or  about  the  public  utility  business 
will  examine  the  following  pages  before  accepting  as 
reliable  the  statements  of  the  Merrill  report  even  though 
they  have  been  issued  under  official  sanction. 


|ti 


I. 

Water  Power  Sites  Under  Private  Ownership  and 

Control. 

In  order  clearly  to  answer  the  Senate's  inquiry  as 
to  what  proportion  of  water  power  sites  are  under  private 
ownership  and  control  it  is  necessary  first  to  ascertain 
what  water  power  sites  there  are  in  this  country. 
Several  estimates  of  the  potential  water  power  resources 
have  been  made.  The  researches  of  the  United  States 
Geological  Survey  in  1908  placed  the  total,  without  con- 
sidering storage  possibilities,  at  36,916,250  water  horse- 
power minimum  flow  and  66,518,500  water  horse-power 
maximum  flow.  This  estimate  was  reviewed  in  1912 
by  the  Commissioner  of  Corporations  who  concluded  that 
the  totals  should  be  reduced  to  32,083,000  water  horse- 
power minimum  and  61,678,000  maximum.  These  figures 
are  again  reviewed  by  Mr.  Merrill,  who  estimates  the 
potential  water  power  resources  of  the  country  at  27,- 
943,000  water  horse-power  minimum  and  53,905,000 
water  horse-power  maximum. 

A  competent  engineering  authority  has  recently  com- 
piled from  all  available  official  data  an  estimate  by  states 
of  the  potential  water  power  resources  of  the  United 
States  and  of  each  state,  showing  a  maximum  potential 
water  horse-power  for  the  United  States  (without  stor- 
age) of  60,713,200.  The  term  maximum  potential  water 
horse-power  is  used  to  represent  the  amount  to  which 
the  sites  would  be  developed  in  practice  and  is  based  on 
the  assumption  that  on  a  country-wide  average  it  will 
pay  to  develop  any  water  power  site  up  to  a  capacity 
equivalent  to  the  lowest  flow  during  the  six  high  water 
months  of  the  year.     As  development  always  equals  and 


20 

frequently  exceeds  the  theoretical  maximum  potential 
water  horsepower  the  maximum  figures  are  properly 
taken  for  purposes  of  classification  and  comparison. 

The  following  table,  prepared  as  stated  by  competent 
engineering  authority  from  official  records,  shows  in  the 
first  column  the  maximum  potential  water  horse-power 
of  the  United  States  and  the  several  states,  developed  and 
undeveloped.  The  table  also  contains  a  classification  of 
these  water  power  resources.  The  second  column  shows 
the  maximum  potential  horse-power  developed  and  un- 
developed at  sites  in  navigable  streams  and  on  the  public 
domain  (where  Federal  permits  are  required  for  develop- 
ment) ;  the  third  column  shows  the  percentage  such  sites 
bear  to  the  total  available  water  horse-power ;  the  fourth 
column  shows  the  maximum  potential  water  horse-power, 
developed  and  undeveloped,  at  sites  not  .requiring  Fed- 
eral permits,  and  the  fifth  column  shows  the  percentage 
such  sites  bear  to  the  total  available  water  horse-power. 
The  table  is  as  follows: 


21 


TABLE  No.  I. 

Potential  Water  Horse-power  of  the  United  States,  and 
OF  THE  Several  States,  Developed  and  Undeveloped, 
WITH  Classification. 


Place. 


United  States... 

Maine 

New  Hampshire 

Vermont 

**Mas8achusett8. . . 

Rhode  Island 

Connecticut 

New  York 

Pennsylvaoia.... 

New  Jersey 

Maryland 

VirfTinla , 

West  Virginia 

North  Carolma.. 
South  Carolina.. 

Georgia 

Florida 

Alabama , 

Mississippi 

Tennessee , 

Kentucky 

Ohio 

Indiana 

Illinois 

Michigan 

Wisconsin 

Minnesota 

Iowa 

Missouri 

Arkansas 

Texas 

Oklahoma 

Kansas 

Nebraska 

North  Dakota.... 
South  Dakota.... 

Montana 

Wyoming. 

Colorado 

New  Mexico 

Arizona 

Utah 

Idaho 

Nevada 

California 

Oregon 

Washington 


Maximum 
potential 
water  h.p. 


60,713,200 
916,000 


-       901,000 


4.242.000 

849.700 

117,600 

210,500 

976,000 

892,000 

1,090,000 

766,000 

699,900 

28,100 

1,070,000 

71.000 

862,000 

210  400 

201,000 

188,000 

441,000 

332.000 

758.000 

560,000 

483.000 

184,(K)0 

69,000 

62.'),000 

235,500 

817,500 

414,0((0 

234,000 

95,000 

4,890,000 

1,470.000 

1,925,000 

497,000 

1,930,000 

1,490,000 

2.910,000 

312,000 

8,866  000 

7,.'«)5.000 

9,990,0(J0 


Federal 

permits 

required. 


46,91 8.','00 
76,000 


60,000 


8.0.35,000 
2!?8.300 

*  "14,666 
150,000 
409.000 
275,400 
40,700 
24:<,000 
8,000 
648,100 

463,966 
89,591) 
85,700 

i43',466 

155.666 

264.000 

229.000 

60,300 

30.000 

120.000 

19.500 

58,400 


10,000 
4,610,000 
1,410,000 
1,785,000 

452,000 
1,885,000 
1,413,000 
8,780,000 

292,000 
8,355,  ("00 
7,320.000 
9,700,000 


Per- 
centage. 


77.2 
8.8 


6.7 


71.6 
88.4 


6.5 
15.4 
45.8 
25.2 

5.8 
34.8 
84.6 
60.1 

'ss'.k 

42.6 
17.7 

'82.5 

'26.5 
47.2 
52.9 
32.8 
43.5 
19.2 
8.8 
16.8 


10.5 
94.8 
96.0 
92.8 
91.0 
97.7 
94.8 
95.5 
98.6 
94.3 
97.5 
97.1 


Federal 

permits  not 

required. 


13,800,0(0 
840.000 


841,000 


1,207.000 
56t>,400 
117,600 
196.500 
826.(K)0 
48:^,000 
814,600 
725  3iX) 
456,900 

15,100 
426.900 

71,000 
898.100 
120,900 
165.300 
133.000 
297,600 
832,000 
608,000 
296.<»00 
204,000 
123.700 

39,000 
505.000 
216,000 
264,100 
414,000 
234.000 

85,000 
280.000 

60,000 
140,000 

45.000 

43.000 

77.000 
130.000 

20.000 

•510.000 

185,000 

290,000 


Per- 
centage. 


22.8 
91.7 


98.3 


28.4 
66.6 

100.0 
98.5 
84.6 
54.2 
74.8 
94.7 
65.2 
65.4 
39.9 

100.0 
46.2 
57.4 
82.3 

100.0 
67.5 

100.0 


.5 

.8 


.5 

.8 
.7 


79. 

52. 

47.1 

67.2 

56. 

80. 

91. 

88.2 
100.0 
100.0 

89.5 
5.7 
4.0 
7.2 
9.0 
2.8 
5.2 
4.6 
6.4 
5.7 
2.5 
2.9 


The  most  important  streams  of  this  region  drain  two  or  more  states.  The  official 
records  from  which  the  data  for  this  table  were  taken  give  summary  estimates  for  the 
streams  as  a  whole,  and  make  no  designation  as  to  state  jurisdiction;  therefore,  these 
nve  states  are  grouped  together  under  one  estimate. 


^^ 


22 


I 


.  The  foregoing  table  shows  that  of  the  available  water 
horse-power  of  the  United  States  46,913,200  water  horse- 
power, or  77.2  per  cent.,  are  so  sitnated  as  to  reqnire  Fed- 
eral permits  for  development,  and  that  18,800,000  water 
horse-power,  or  22.8  per  cent.,  are  so  situated  as  to  be 
capable  of  development  without  such  ]>ermits.  Strictly 
speaking,  the  latter  tigure  represents  the  total  water 
horse-power  which  can  be  sai<l  to  be  un<ler  i)rivate  owner- 
ship and  control.  Development  has  taken  place  however 
under  Federal  permits,  to  the  extent  of  1,835,903  water 
horse-power.  The  ])ermits  granted  have  in  all  cases  re- 
tained ji  measure  of  public  contrcd,  and  in  many  cases  the 
permits  are  revocable  at  the  will  of  the  government. 
Nevertheless  in  order  fully  to  present  the  facts  called  for 
by  the  Senate  resolution  the  sites  develo])ed  under  Fed- 
eral permits  may  be  considered  as  having  i)assed  to  i)ri- 
vate  ownership  and  control. 

The  following  table  accordingly  fully  answers 
the  Senate  impiiry  as  to  what  pro])ortion  of  exist- 
ing sites  are  in  private  ownership  and  control  by 
adding  to  the  maximum  water  horse-])ower  capable  of 
develojiment  at  sites  not  re<]uiring  Federal  |)erniits  the 
amounts  developed  where  Federal  permits  are  required. 
The  first  coluuiu  shows  the  uiaximum  potential  water 
horse-])ower  of  the  United  States  and  of  the  several  states ; 
the  se<*ond  column  shows  the  maximum  potential  water 
horae-power  at  sites  privately  owned ;  the  third  column 
shows  the  water  hoi*se-power  developed  under  Federal 
permits:  the  fourth  column  shows  the  total  thus  consid- 
ered as  under  private  ownership  and  control  and  the 
fourth  column  shows  the  percentage  that  total  bears  to 
the  maximum  potential  water  hoi*se-power  at  all  sites. 

The  table  is  as  follows : 


23 


TABLE  II. 


Proportion  of  Maximum  Potential  Water  Horse-Power 
UNDER  Private  Ownership  and  Control. 


Place. 


Unit<*d  Siaieu 

IdaiDe 

New  Hampshire. 

Vermont , 

MassachuHetts  — 

Rhode  Island 

Connecticut , 

New  York , 

Pennsvlvania 

New  Jersey 

Maryland 

Virfirinia 

West  Virjdnia 

North  Carolina... 
South  Carolina .    . . 

Oeorgia 

Florida 

Alabama 

Tennessee 

.Mississippi 

Kentucky 

Ohio 

Indiana 

Illinois 

Michigan 

WisconHiiv 

Minnesota .. 

Iowa 

Missouri 

Arkanaas 

Texas 

Oklahoma 

Kansas 

Nebt'a><kM 

North  Dakota     . . . 
South  Dakota  — 

Montana 

W  yommg 

Colorado 

New  Mexico 

Arizona 

Utah 

Idaho 

Nevada 

California 

Oregon 

Washington 


Total  maxi- 
mum poten- 
tial water 
horse-power. 


eo.Tis.aoo 

916,000 


901000 


4.242.000 

849.700 

llT.tfOO 

210,500 

976,000 

^92.000 

1.090.000 

T«6,0()0 

699.900 

28,100 

1.070,000 

862,000 

71000 

210,400 

201,000 

138,000 

441.000 

832,000 

758,000 

560  000 

488  000 

184,000 

69.000 

625.000 

286,500 

317,500 

414  000 

284,000 

95.000 

4.890  000 

1,470  000 

1.925.000 

497,000 

1  980.000 

1.490.000 

2.910,000 

312.000 

8,865,000 

7  505,000 

9,990,iXX) 


Federal 

permits  not 
required. 


18,800.000 
840,000 

841,000 


1,207,000 
566  400 
117  600 
196.500 
826.000 
488,000 
814.600 
725.800 
456,900 

15,100 
126.900 
896,100 

71,000 
120,900 
165,800 
188.000 
297  600 
832,000 
608,000 
296,000 
204.000 
128,700 

39,000 
505,000 
216.000 
264,100 
414.000 
284.000 

85,000 
280,000 

60,000 
140,000 

45  000 

45,000 

77,000 
130,000 

20.000 
510,000 
185,000 
290,000 


Developed* 
under 
Fednral 
permits. 


1,885,908 


900 


808.600 
118,000 


29,000 
11,750 

9.000 

12,000 

108,150 

6,600 
70,000 
42,000 


1,252 
'40,481 


63,806 
110..')00 
150.000 

20,000 


8,400 

61,000 

964 

74,618 


24.630 
46.485 
67,178 
8,075 
824.610 
28,816 
96,793 


Total 
under 
private 
ownership. 


15.685,908 
840,000 


841,200 


1,515,600 
684,400 
117.600 
196,500 
855,000 
494.750 
828,600 
737.800 
565  050 

20.700 
496,900 
440.100 

71,000 
120.900 
166,552 
133.(X)0 
338.0!<1 
332,000 
666,806 
406,500 
854.n(X) 
143,700 

89,000 
."WS.OOO 
216,000 
264,100 
414,000 
234  0()0 

93.400 
341,000 

60,964 
211,618 

45,000 

69,630 
122.485 
197,173 

23,075 
884,610 
213,816 
386,793 


Percentage 
of  maximum 

potential 
water  h.-p. 


86.7 
91.7 


98.4 


85.7 

80.6 

100.0 

98.4 

87.6 

55.4 

75.5 

96.2 

80.8 

89.6 

46.4 

51.1 

100.0 

57.4 

82.9 

100.0 

76.6 

100.0 

88.0 

72.6 

81.8 

78.0 

56.5 

80.8 

91.8 

83.2 

lOO. 

100. 

98.4 

7.0 

4.1 

11.2 

9.0 

8.6 

8.2 

6.8 

7.4 

9.4 

2.8 

8.9 


Note:  Where  rauoicipalities  own  or  control  water  power  sites  developed  or  un- 
developed public  control  would  exist  although  Federal  permits  were  not  required  or 
development  had  taken  place  un  ler  them.  In  the  table,  however,  all  sites  not  under 
federal  control  have  been,  for  convenience,  considered  as  private  sites. 

*  Development  figures  taken  from  Merrill  report. 


24 


The  foregoing  table  answers  the  Senate  inquiry  as 
to  what  proportion  of  existing  water  power  sites  are  in 
private  ownership  and  control  by  showing  that  at  the 
utmost  estimate  only  25.7  per  cent,  are  so  owned  and 
controlled,  and  that  of  this  proportion  a  considerable 
amount  is  subject  to  public  control  through  Federal  per- 
mits under  which  development  has  taken  place. 

With  more  than  74  per  cent,  of  the  available  water 
power  of  the  United  States  under  public  control  a  mo- 
nopoly of  water  power  is  obviously  impossible. 


II. 

Ownership  of   Water   Power   Sites   Under   Private 

Control. 

The  Senate  resolution  inquires  what  companies  and 
corporations  own  and  control  the  water  power  sites  in 
private  ownership.  Mr.  Merrill  deals  with  this  question 
in  a  curious  manner.  In  his  text  he  states  that  4,870,320 
water  horse-power  had  been  developed  up  to  and  in- 
cluding 1912,  and  that  by  a  special  census  he  ascertained 
that  1,668,114  additional  water  horse-power  had  been 
developed  up  to  January  1,  1916.  The  total  is  6,538,434. 
Notwithstanding  this,  he  presents  (Table  54,  Part  II, 
page  67,  et  seq.)  a  statement  by  states  of  power  devel- 
oped including  in  the  table  a  column  for  water  power. 
The  sum  of  the  totals  of  developed  water  power  in  this 
column  is  only  5,321,699.  In  other  words,  Mr.  Merrill 
lists  in  his  Table  54,  which  is  supposed  to  deal  with  the 
ownership  and  control  of  developed  water  power  only 
5,321,699  water  horse-power,  out  of  a  total  as  he  states 
it  of  6,538,434  water  horse-power.  Moreover  he  does  not 
account  for  the  ownership  of  all  of  the  water  horse- 
power listed.  Of  that  amount  he  includes  605,852 
water  horse-power  under  the  heading  "all  other  sta- 
tions''.     To    municipal    central    stations    and    United 


tt 


25 


States  Reclamation  Service  he  attributes  234,015  water 
horse-power;  and  to  "proprietors  of  locks  and  canals", 
11,262  water  horse-power.  Yet  the  list  contains  the 
names  of  513  companies  and  corporations.  There  are 
numerous  duplications  (of  companies  owning  water  power 
in  more  than  one  state).  Eliminating  the  duplications 
the  list  shows  226  separate  companies  and  corporations 
which  the  author  says  own  or  control  4,470,570  water 
horse-power,  or  an  average  of  about  19,781  water  horse- 
power each.  This  in  itself  shows  diversity  of  ownership 
instead  of  concentration.  Had  the  author  extended  his 
list  by  naming  all  the  owners  of  developed  water  power 
— to  say  nothing  of  the  owners  of  private  sites  not  yet 
developed — even  greater  diversity  of  ownership  would 
have  been  shown. 

Elsewhere  in  his  report  Mr.  Merrill  gives  a  list  of  87 
companies,  59  of  which  he  says  own  or  control  water 
power  to  the  amount  of  3,496,423  water  horse-power  (or 
an  average  of  less  than  60,000  water  horse-power  each). 
From  this  list  he  selects  the  18  owning  or  controlling 
the  largest  amounts  and  says  that  they  own  or  control 
51.4  per  cent,  of  the  water  horse-power  used  in  public 
service  operations. 

His  statement  (which  deals  with  other  sources  of 
power  as  well  as  water  power)  is  as  follows  (Part  I, 
p.  14)  : 

"If  inquiry  is  made  into  the  control  by  certain 
corporations,  it  is  found  that  85  public-service 
corporations,  tli rough  ownership  of  properties, 
majority  ownership  of  stock,  lease,  or  direct  man- 
agement, control  68.6  per  cent,  of  the  total  public 
service  power  in  the  United  States;  35  of  these 
85  control  one-half  of  the  total;  16  control  one- 
third;  and  10  control  one-fourth.  Of  these  85 
corporations,  59  have  water-power  developments; 
and  of  these  59,  18  control  2,356,521  water  horse- 
power, or  more  than  one-half  of  the  total  water 


2G 


27 


\f 


power  used  in  public-service  operations  in  the 
United  States.  Of  these  18  corporations,  9  con- 
trol more  than  one-third  of  the  total,  and  0  more 
than  one-fourth." 

This  is  further  elaborated  on  x)aj;es  58  and  59  of  Part 
I  as  follows: 

''i  nitcd  nutates. — At  the  end  of  the  suniinary 
tables  is  given  a  list  of  the  87  corporations  each 
of  which,  according  to  the  data  given  in  the  de- 
tailed sheets,  controls  not  less  than  30,000  horse- 
power of  primary  power.  Two  companies  con- 
tained in  the  list,  the  International  Paper  Co. 
and  the  Union  Carbide  Co.,  are  engaged  in  manu- 
acturing.  The  remaining  85  are  jHiblic-service 
corporations.  These  87  corporations  control 
3,496,423  water  horse-power  and  6,275,092  steam 
and  gas  horse-i)ower,  a  total  of  9,771,515  horse- 
jmwer,  or  65.8  per  cent,  of  the  total  listed  for  the 
United  States.  If  the  two  manufacturing  con- 
cerns are  eliminate<l  and  the  amount  of  uumufac- 
turing  power  containcMl  in  the  tables  is  subtracte<l 
from  the  total,  the  85  concerns  remaining  control 
68.5  per  cent,  of  the  total  public-service  power  in 
the  United  States.  Thirty-five  of  the  85  control 
one-half  of  this  total ;  16  control  one-third  and  10 
control  one-fourth.  Of  the  85  corporations  shown 
in  the  table  59  have  water-power  developments 
and  control  65.7  per  cent,  of  the  total  water 
power  listed.  If  the  two  manufacturing  concerns 
are  eliminated  from  this  number  and  the  water 
])ower  used  in  manufacturini»  is  subtracte<l  from 
the  total  water  power,  the  remaining  57  concerns 
control  72.2  per  cent,  of  the  total  water  power  in 
the  United  States  used  in  public-service  o])era- 
tions.     Of  these  57  concerns  the  following  18: 

1.  Stone  &  Webster, 

2.  Montana  Power  Co., 

3.  Utah  Securities  Corporation, 

4.  E.  W.  Clark  &  Co.  Management  Corpora- 

tion, 


6. 

^ 
<. 

8. 

9. 
10. 
11. 
12. 
13. 
14. 
15. 
16. 
17. 

18. 


Southern  Power  Co., 
Hydraulic  Co.  of  Niagara  Falls, 
Pacific  Gas  &  Electric  Co., 
Pennsylvania  Water  &  Power  Co., 
Pacific  Light  &  Power  Corporation, 
H.  M.  Hyllesby  &  Co., 
The  Niagara  Falls  Power  Co., 
Washington  Water  Power  Co., 
Oeorgia  Railway  Light  &  Power  Co., 
New  England  Power  Co.  of  Maine, 
Western  Power  Co., 
Alabama  Traction,  Light  &  Power  Co., 
Commonwealth  Power,  Railwav  &  Light 

Co., 
United  Kailwavs  Investment  Co., 


together  control  2,356,521  water  horse-power, 
more  than  one  half  (51.4  per  cent.)  of  the  total 
water  power  used  in  public-service  operations  in 
the  United  States.  Of  the  18  corporations  named, 
the  first  9  control  more  than  one-third  (33.9  per 
cent.)  of  the  total,  and  the  first  6  more  than  one- 
fonrth    (25.4  jjer  cent.)." 

Mr.  Merrill's  method  should  be  carefully  noted.  First 
he  states  that  the  total  water  horse-power  developed  in 
the  country  is  6,538,434  water  horse-power.  Then  he 
lists  power  development  by  states  naming  the  companies 
owning  or  controllinii  the  several  ])ower  developments 
listed,  but  his  total  for  water  power  in  this  list  is  only 
5,321,699,  and  for  nearly  1,000,000  water  horse-power  of 
this  total  he  fails  to  name  the  owner,  using  the  inclusive 
terms  "all  other  stations'',  etc.  He  thus  leaves  a  consider- 
able part  of  the  water  power  he  says  has  been  developed 
unaccounted  for  as  to  ownership.  Next  he  abruptly 
turns  his  attention  to  such  water  power  only  as  is  nsctl 
in  public  sercirv  operations. 

As  development  of  water  power  thus  far  has  taken 
pUice  more  largely  for  public  service  purposes  it  is  not 


28 


surprisinji:  tliat  the  companies  doing  the  larj!;est  pnblic 
utility  business  should  be  shown  to  own  and  control  a 
large  percentage  of  the  tenter  potoer  used  in  puhlic  ser- 
vice operations.  This  is  all  that  Mr.  ^Merrill  shows  by 
his  statements,  curiously  as  he  has  arranged  them. 

Elsewhere  in  his  report  the  author  makes  the  state- 
ment that  "120  public  service  corporations  out  of  some 
1,500  corporations  the  developments  of  which  have  been 
listed  in  this  report  claim  to  own  or  control  a  total  of 
3,683,000  undeveloped  water  horse-power."  Much  has 
been  made  of  this  statement  by  Mr.  Pinchot  and  others  in 
using  the  report  to  support  the  contention  that  a  water 
power  "trust"  exists  or  is  threatened,  but  the  report 
nowhere  presents  the  data  upon  which  the  statement  is 
based,  and  the  report  says  (Part  I,  page  62)  : 

"Time  has  not  been  available  for  verifying  the 
data  or  for  determining  whether  or  to  what  degree 
such  undeveloped  water  powders  are  claimed  by 
those  interests  which  control  the  majority  of  the 
developed  powers." 

No  list  is  given  of  the  supposed  claimants.  Had  a 
list  been  given  it  would  have  added  to  the  number  of  com- 
panies and  corporations  required  to  be  named  if  a  com- 
plete answer  to  the  Senate's  question  were  to  be  pre- 
sented. Further  diversity  of  ownership  would  thus  be 
shown,  if  such  "claims"  have  any  significance  what- 
ever. 

An  examination,  how^ever,  of  some  of  the  "claims" 
which  Mr.  Merrill  must  have  had  in  mind,  but  which  he 
did  not  definitely  set  forth  in  his  report,  indicates  that 
they  are  in  fact  not  significant  at  all. 

Four  large  water-power  companies  in  the  West,  in 
their  annual  reports  and  circulars,  claim  to  control  un- 
developed water-power  sites  to  the  aggregate  of  1,262,000 


29 


horse-power.  But  this  control  is  greatly  qualified.  The 
land  constituting  the  power  sites  entering  into  this  aggre- 
gate is  only  partially  owned  by  these  companies.  In  some 
cases  they  own  very  little.  In  other  cases  it  consists 
only  of  the  ownership  of  water  rights  under  state  laws, 
the  land  necessary  to  the  development  being  in  government 
ownership.  One  Western  power  company  claims  to  own 
550,000  of  the  undeveloped  horse-power  along  one  river. 
This  "control"  consists  of  a  comparatively  small  amount 
of  land  and  certain  water  rights.  Most  of  the  land  com- 
prising these  sites  is  in  the  ownership  of  the  Federal 
government,  and  cannot  be  utilized  except  on  such  terms 
and  under  such  restrictions  as  the  government  washes  to 
impose.  The  fact  that  the  company  owns  certain  land 
and  certain  water  rights  will  be  of  advantage  to  it  only 
when  the  government  conveys  the  land  either  tem- 
porarily or  permanently  under  the  laws  of  the 
United  States.  On  a  navigable  stream  in  the  middle 
West  a  company  owns  land  on  which  it  bases  the  claim 
of  control  of  upwards  of  100,000  horse-power.  But 
before  that  company  can  lay  a  stone  in  the  development 
of  these  sites,  it  must  secure  a  permit  from  Congress, 
make  its  development  under  plans  approved  by  the  Secre- 
tary of  War,  and  concede  the  paramount  interests  of 
navigation.  Another  company  in  a  Southern  state  owns 
idl  of  the  lands  necessary  to  the  development  of  70,000 
horse-power  along  a  navigable  stream.  That  company 
wished  to  develop,  and  endeavored  to  secure  legislation 
under  the  general  dam  act,  but  failed  to  do  so  on  ac- 
count of  a  Presidential  veto.  Consequently  that  com- 
pany, with  all  its  "ownership  and  control"  has  been  un- 
able to  do  anything  whatever  in  the  development  of  its 
power  site.  This  is  the  sort  of  control  which  the  report 
includes  under  "claim  to  own  or  control".  It  is  no  con- 
trol at  all.  In  these  cases,  obviously,  non-development 
is  due  to  the  failure  of  the  laws,  not  of  the  owners. 


t  - 


30 


H  ' 


!!     I 


Had  Mr.  Merrill  eudeuvoretl  directly  and  siiuplv  and 
without  argument  to  answer  the  Senate's  inquiry  as  to 
the  companies  and  corporations  owning  the  water  i)ower 
sites  developed  and  undeveloped  which  are  in  private 
ownership  and  control,  he  would  have  said,  from  the  in- 
formation at  hand,  substantiallv  as  follows: 

The  maximum  potential  water  horse-power  developed 
and  undeveloped  at  sites  in  ])rivate  ownership  and  con- 
trol (including  as  in  private  ownershij>  sites  where  de- 
velopment has  taken  place  under  Federal  permits, 
although  such  permits  in  a  large  measure  retain  public 
control)  is  15,G35,90t^  water  horse-power.  The  ownership 
of  these  sites  is  gi*eatly  diversitied.  Only  about  one- 
fourth  of  these  sites  are  owned  by  companies  or  corpora- 
tions important  enough  to  be  found  in  a  search  through 
the  leading  manuals  dealing  with  such  matters,  yet  even 
these  make  up  a  list  of  22G  names.  A  complete  list  would 
have  to  include  riparian  ownei*s,  ownei*s  of  mines,  quar- 
ries, farms,  small  manufacturing  plants,  too  numerous  to 
catalogue.  The  names  could  not  even  be  secured  without 
searching  the  title  records  in  the  counties  of  the  several 
states.  The  striking  featui^e  of  any  such  list  if  it  could 
be  secured  would  be  the  great  diversity  of  ownership 
shown  therebv. 

This  would  have  answered  the  Senate's  question  sim- 
ply, directly  and  truthfully,  but  it  would  not  have  assisted 
in  showing  "concentration  of  water  power  control"  nor 
the  existence  or  threat  of  a  **water  jmwer  monopoly". 

III. 

Wateu  Power  Devei^opment  i\  the  Ignited  States. 

The  Senate  asked :  What  water  horse-power  has  been 
developed  in  the  United  States? 

Mr.  Merrill  takes  from  the  Census  reports  for  1912 
and  certain  other  data  an  estimate  of  4,870,320  horse- 
power as  the  water  power  development  in  the  United 


31 


States  to  that  time.  He  also  says  that  a  special  census 
taken  for  his  report  shows  an  additional  1,668,114 
water  horse-power  developed  in  the  years  1913,  1914  and 
1915.  This  would  give  a  total  of  6,538,434  as  of  January 
1,  1916.  There  is  reason  to  believe  however  that  his 
so-called  census  is  not  correct.  He  himself  says  (Part  I^ 
page  18)  that  his  data  for  recent  development  "has  been 
secured  from  the  McGraw  Electrical  Directory,  April, 
1915;  The  McGraw's  Electric  Railway  Directory,  August, 
1914;  Moody's  ^Manual  of  Railroad  and  Corporation 
Securities,  1915;  Poors  Manual  of  Public  Utilities,  1914; 
reports  of  the  several  state  public  utilities  commissions; 
reports  of  the  (ieological  Survey  and  of  the  Engineers  of 
the  Forest  Service;  engineering  periodicals;  and  an  ex- 
tended correspondence  with  power  companies.  He  adds 
tliat,  ''the  different  tionrces  of  information  do  not  always 
af/rec,  hut  in  case  of  d\sa(freemcnt  that  information  which 
seems  the  most  reliable  ha^  been  used^\ 

The  fact  is  that  complete  and  satisfactory  figures 
showing  the  extent  of  water  power  development  in  this 
country  are  nowhere  available.  Mr.  Merrill  notwith- 
standing his  general  statement  lists  only  5,321,699  de- 
veloped water  hoi-se-power.  This  does  not  include  nu- 
merous relatively  small  developments  at  private  sites 
which  would  considerably  increase  the  total.  Neverthe- 
less Mr.  Merrill's  statements  of  developed  water  horse- 
power are  the  only  ones  available  which  are  recent  and 
official  and  therefore  have  been  used  in  the  absence  of 
anything  better  in  the  discussion  and  analysis  following. 

The  following  table  shows  the  maximum  potential 
water  horse-power  in  the  United  States  and  in  the  several 
states,  the  total  water  horse-power  developed  in  the 
United  States  and  the  several  states  (as  set  forth  in 
the  report )  and  the  percentage  such  development  bears  to 
the  maximum  potential  water  horse-power.  The  table  is. 
as  follows: 


I 


32 


TABLE  No.  III. 


Developed  Water  Horse-Power  in  the  United  States  and 
THE  Several  States,  as  Shown  by  Mr.  Merrill. 


I 


1| 


United  states.... 

Maine 

New  Hampshire 

Vermont 

Massac  liusetts. . . 

Rhode  Island.  .. 

Connecticut 

New  York 

Pennsvlvania — 

New  Jersey 

Maryland 

Virginia 

We^t  Virjfinia.. 

North  Carolina. 

South  'Jarolina. 

Georgia 

Florida 

Alabama 

Mississippi 

Tennessee 

Kentucky 

Ohio 

Indiana 

Ulinois 

Michigan 

Wisconsin 

Minnesota 

Iowa 

Missouri"  •••.... 

Arkansas 

Texas 

Oklahoma 

Kansas 

Nebraska 

North  Dakota.. 

South  Dakota.. 

Montana 

tDelaware 

tLouisiana 

Wyoming 

Colorado 

New  Mexico 

Arizona 

Utah 

Idaho 

Nevada 

California 

Oregon 

Washington  — 


♦•Maximum 

potential  water 

horse  power. 


60,718,200 
916,000 


901,000 


4,242,000 
849.700 
117,600 
210,500 
976.000 
892.000 

1,090.0UO 

766,000 

699.900 

28,100 

1,070  000 
71,000 
862,000 
210,400 
201,000 
18»000 
441,000 
382,000 
758,000 
560,000 
488  0(iO 
184.000 
69,000 
625.000 
285  500 
817.500 
414.000 
284,000 
96.000 

4,890,000 


1,470,000 
1,925,000 

497,000 
1.980,000 
1.490,000 
2,910,000 

812,000 
8866,000 
7,506.000 
9,990,000 


Water 
horse- power 
development. 


5,821,699 
277,589 


424,884 


799.580 

168,.')88 

9,947 

8.W89 

94,229 

28,787 

99,105 

227.012 

217,565 

7,080 

82,466 

97,835 

19,948 

8,091 

54.401 

213,111 

288.569 

229.S68 

169  481 

90,670 

2,200 

6,777 

1,758 

11,688 

10,799 

80 

18,068 

902,896 

54 

160 

2.544 

92,803 

562 

88.680 

96.784 

162  800 

18,820 

722,125 

166,768 

381,184 


Percentage  of 
development  to 
maximum  po- 
tential water 
horse-power. 


8.8 
a.o 


47.1 


18.8 
19.9 

8. 

1. 

9. 

2. 

9. 
29.6 
31.2 
30.4 

7.7 


.5 
.6 
.7 
.7 
.1 


11.8 


9.9 

6.1 

12.8 

64.2 

80.8 

40.9 

86.8 

11.3 

8.2 

1.1 

.7 

8.7 

2.6 


18.7 
4.1 


.9 
4.8 

.1 
1.7 
6.5 
5.2 
4.8 
8.9 
9.1 
8.8 


*♦  In  discu8;iing  developed  water  horse-power  the  comparisons  are  properly  made 
with  the  maximum  water  horse  powcir  capable  of  development  because  where  develop- 
ment has  taken  place  the  installatioo  has  generally  equalled  and  in  some  cases  actually 
exceeded  the  theoretical  maximum  potential  water  horse-power. 

t  Under  the  method  adopted  by  the  Geological  Survey  no  potential  water  horse-power 
is  shown  for  the  states  of  Delaware  and  Louisiana,  yet  according  to  Mr.  Merriirs  tables 
water  power  development  has  taken  place  in  these  states  to  the  extent  of  54  and  160 
water  horse- power,  respectively. 


33 


The  foregoing  table  shows  that  only  8.8  per  cent,  of 
the  water  horse-power  capable  of  development  in  the 
United  States  has  thus  far  been  developed.  If  Mr.  Mer- 
riirs general  estimate  of  total  development  were  accepted 
as  accurate  the  percentage  of  development  would  be  only 
10.7  per  cent.  Either  figure  strikingly  shows  how  greatly 
wat«r  power  development  has  been  retarded  in  the  United 
States. 

That  a  principal  retarding  influence  has  been  the  lack 
of  satisfactory  laws  permitting  development  where  Fed- 
eral permits  are  required  is  shown  by  a  classification  of 
water  horse-power  development  showing  the  relatively 
small  amount  of  development  where  Federal  permits  are 
required  as  compared  with  the  development  where  such 
permits  are  not  required. 

The  following  table  shows  the  total  water  horse- 
power developed  in  the  United  States  (as  stated  in  the 
report),  the  amount  developed  where  Federal  permits  are 
required,  the  percentage  this  bears  to  the  total  develop- 
ment, the  amount  developed  where  Federal  permits  are 
not  required,  and  the  percentage  this  bears  to  the  total 
development. 

The  table  is  as  follows : 


■t  * 


M 


!( 


34 


TABLE  No.  IV. 

Water  Horse-power  Development  Classified  with 

Percentages  of  Total. 


1 


United  States. . . . 

Maine 

New  Hampshire. 

Vermont 

Massachusetts . . . 

Rhode  Island 

♦Connecticut 

New  York 

Pennsylvania 

N«»w  Jersey 

Maryland 

Virginia 

West  Virginia 

North  Carolina... 
South  Carolina... 

Georgia 

Florida 

Alabama 

Tennessee 

Ohio 

Indiana 

Illinois 

Michigan 

Wisconsin 

Minnesota 

Iowa 

Missouri 

Arkansas 

Texab 

Oklahoma 

Kansas 

Nebraska 

North  Dakota 

South  Dakota 

Montana 

Wyoming 

Colorado 

New  Mexico 

Arizona 

Utah 

Idaho 

Nevada 

California 

Oregon  

Washington  

Delaware 

Louisiana 


Total  water 

horse-power 

developed. 


5,821,699 

277,689 

106,415 

117,889 

168,886 

2.486 

41,910 

799.580 

168,.<>d8 

9.947 

8JR9 

94,229 

28,787 

99,105 

227.012 

217,565 

7,080 

82.466 

97,835 

19,948 

8.091 

54,401 

218.111 

238,569 

229,258 

159,481 

20  670 

2,200 

6,777 

1,768 

11.688 

10,799 

80 

18,058 

202.895 

2,544 

92,808 

662 

88.680 

96,734 

152,860 

18.820 

722,125 

166,768 

831,134 

64 

160 


Total 

developed 

where  r  ed. 

permits 

required. 


1.686,906 


200 
806.600 
118,000 


29,000 
11.760 

9,000 

12000 

108.150 

5,600 
70000 
42,000 

1,252 

'40,481' 

'68,866' 

110.500 

150,000 

90,000 


Percent- 
age. 


8400 

64.4 

61,000 

80.0 

904 

87.9 

74.018 

81.0 

24,630 

78.8 

46,485 

47.0 

67,178 

44.0 

8.075 

28.1 

324,610 

45.0 

28.816 

18.4 

96,798 

29.2 

84.4 


.6 
88.6 
70.0 


30.8 

49.5 

9.1 

5.8 

49.7 

79.6 

86.0 

43.0 

6.8 

'74.4 

in'.h' 

48.8 
94.0 
96.7 


Total 

developed 

where  Fed. 

permits  not 

required. 


Percent- 
age. 


3,48.'>79fi 

277.5K9 

108.415 

117889 

158.685 

2,486 

41.710 

490.980 

60,688 

9.947 

8.289 

65.229 

12,037 

90,105 

215,01-^ 

109.405 

1,430 

12,466 

.55  886 

18,096 

8,091 

13.920 

218.111 

1B9,763 

llK.7r>8 

9,481 

670 

2,9)0 

6.777 

1.75H 

l^W-S 

10,799 

80 

4.668 

141.896 

1,680 

17,686 

662 

9,000 

51,249 

85,1P7 

10,245 

897,515 

127.V47 

884,841 

54 

160 


65.6 

100.0 

100.0 

100.0 

100.0 

100.0 

99.6 

61.4 

80.0 

100.0 

lUO.O 

69.2 

50.5 

90.9 

94.7 

60.8 

80.4 

16.0 

67.0 

98.7 

100.0 

25.6 

100.0 

72.7 

61.8 

6.0 

8.8 

100.0 

100.0 

100.0 

100.0 

1U0.0 

100.0 

86.6 

70.0 

62.1 

19  0 

100.0 

86.7 

68.0 

66.0 

76.0 

56.0 

81.6 

70.8 

1000 

100.0 


♦In  several  instances  early  water  power  developments  wer>  at  sites  not  th«»n 
requiring  Federal  permits,  although  since  the  Acts  of  1890  and  1899  permits  would  be 
required  at  such  sites  if  the  development  were  now  being  made.  Such  developments 
hava  of  course  been  included  in  the  column  for  development  without  Federal  permit 


It  . 


35 


The  forej^oiiig  table  shows  that  only  34.4  per  cent,  of 
the  water  horse-power  developiiient  in  the  United  States 
has  taken  place  where  Federal  permits  are  required,  al- 
though the  available  water  horse-power  at  such  sites,  as 
shown  by  Table  No.  I,  is  46,913,200  water  horse-power; 
on  the  other  hand,  (Jo.O  per  cent,  of  existing  development 
has  taken  place  at  sites  not  rc^cpiiring;  Federal  permits, 
although  the  total  available  water  horse-power  at  such 
sites  is  only  13,800,000  water  liorse-i)ower.  In  other 
words  with  an  available  water  horsepower  at  sites  not 
re(piiring  Federal  permits  of  less  than  one-third  of  that 
available  where  such  permits  aie  recpiired,  nearly  tw^ice 
as  great  development  has  taken  place  where  such  jjermits 
are  not  required.  These  figures  put  beyond  controversy 
the  fact  that  watei-  power  development  at  sites  requiring 
Federal  permits  has  been  greatly  retarded  by  lack  of 
adecpiate  laws  under  which  permits  may  be  issued. 

This  fact  is  strikingly  shown  by  a  comparison  of  the 
]>ercentage  of  development  which  has  taken  place  at  sites 
re(piiring  Federal  permits  with  the  percentage  of  develop- 
ment at  sites  not  requiring  such  permits. 

The  following  table  shows  for  the  United  States  and 
the  several  states  the  available  water  horse-power  at  sites 
re(iuii'ing  Federal  permits  for  development,  the  percent- 
age of  <levelopment  at  such  sites,  the  available  water 
horse-i)ower  at  sites  not  reipiiring  such  permits,  and  the 
percentage  of  development  at  such  sites. 

The  table  is  as  follows : 


36 


TABLE  No.  V. 


Development  at  Public  and  Private  Sites  Compared. 


Maximum 

potential  water 

horse-power 

requiriag 

Federal  permits. 

Percentage 
developed. 

MMximum 
potential  water 
horse-power  not 

requiring 
Federal  permits. 

Percentage 
develop^. 

United  States 

46,918,200 
76,000 

60,000 

8,085.000 
283,300 

8.9 

.8 

11.7 
41.7 

"19  .'s'" 
2.8 
8.8 
29.5 
44.5 
70.0 
10.9 

"'•ios' 

8.5 

"98!2' 

*'4i!2"" 
41.8 
65.5 
88.2 

"84!6" 
l.:» 
.1 
4.2 

"i'.i" 

8.2 
2.4 
1.1 
8.9 
.4 
1.0 

18.800,000 
840,000 

841,000 

1,207,000 
566. 4a» 
117,600 
196.500 
826,000 
488  000 
814,600 
726.800 
456,900 

15.100 
426.900 

71,000 
898,100 
165.300 
120  900 
188,000 
297.600 
882.(X)0 
608.000 
296,000 
204,000 
128,700 

89.000 
606,000 
216.000 
264.100 
414,000 
284,000 

85,000 
280.000 

60  000 
140,(J00 

45,000 

45,000 

77,000 
180,000 

20.000 
510.000 
185,000 
290,000 

Maine 

25.2 
88.0 

New  Hampshire 

Vermont 

Massachusetts 

Rhode  Island 

60.4 

Connecticut 

New  York 

40.7 

Pennsylvania 

New  Jersey 

8.9 
8.6 

Maryland 

14.000 
150,000 
409,000 
275,400 

40.700 

248,000 

8,000 

648.100 

Virginia 

1.7 

West  Virginia 

7.9 

North  Carolina 

2.5 
11.1 
29.6 

South  Carolina 

Georjria 

Florida 

2t.O 

Alabama 

9.5 
2.9 

Mississippi 

Tennessee 

463,900 
86,700 
8P,500 

"u.o 

Ohio 

Kent  uciry 

11.8 

Indiana 

4.7 
64.2 
28.1 

Illinoid 

Michigan 

148,400 

156.666 

264,000 
229,000 
60,800 
80  000 
120,000 
19  500 
68,400 

Wisconsin 

Minnesota 

Iowa 

40.0 

Missouri 

4.6 

Arkansas 

.5 
6.6 

Texas 

Oklahoma 

1.8 

.8 

4.4 

2.6 

Kansas 

Nebraska 

North  Dakota 

South  Dakota 

10,000 
4,610.000 
1.410.000 
1,785.000 

452,000 
1,885  OiJO 
1,413.000 
2,780.000 

292.000 
8,865.000 
7,890.000 
9,700,000 

60.7 
2.6 
12.6 
1.2 
20.0 
67.2 
65.6 
51.2 
77.9 
69.8 
81.0 

Montana 

Wyoming 

Colorado. 

New  Mexico 

Arizona 

Utah 

Idaho — 

Nevada 

California 

Oregon ».,.. 

Washington 

37 


ll 


The  foregoing  table  shows  that  of  the  available  water 
horse-power  at  sites  requiring  Federal  permits  only  3.9 
per  cent,  has  been  developed,  while  of  the  available  water 
horse-power  at  sites  not  requiring  Federal  permits  25.2 
per  cent,  has  been  developed. 

In  the  present  state  of  the  art  and  of  market  require- 
ments a  development  of  25.2  per  cent,  of  the  available 
w^ater  horse-power  at  sites  not  requiring  Federal  permits 
may  be  regarded  as  adequate  development.  If  an  equiva- 
lent development  had  taken  place  at  sites  requiring 
Federal  permits  the  water  power  development  of  the 
country  would  amount  to  more  than  15,000,000  water 
horse-power,  nearly  three  times  the  development  listed 
in  the  report  and  more  than-  twice  the  highest  estimate 
of  present  development.  Water  power  development  is 
of  course  dependent  upon  market  conditions  and  the  fact 
that  available  water  power  remains  undeveloped  at  some 
private  sites  does  not  in  any  sense  affect  the  demand  for 
further  development  at  public  sites  or  indicate  that 
development  has  been  held  back  by  the  owners.  The 
undeveloped  private  sites  are  for  the  most  part  unavail- 
able for  economic  reasons  (i.  e.,  remote  from  market, 
unduly  costly  to  develop,  etc.).  The  same  is  true  of 
some  public  sites,  and  development  up  to  the  full  poten- 
tial capacity  of  the  country  is  not  to  be  expected.  But 
this  fact  in  no  way  diminishes  the  accuracy  of  the  asser- 
tion that  a  development  of  only  3.9  per  cent,  of  the  enor- 
mous available  water  horsepower  at  sites  requiring 
Federal  permits  can  in  no  sense  be  regarded  as  adequate. 

The  author  does  not  bring  out  these  facts  in  his  re- 
port Had  he  done  so  he  could  not  have  contended  that 
water  power  development  in  the  country  has  been  satis- 
factory notwithstanding  the  defects  of  existing  laws. 


I 


i 


\ 


! 


38 


Ifi^  1! 


Oppossitioii  to  pondinj::  water  power  lejrislation  by  Mr. 
IMncliot  and  his  associates  lias  frequently  taken  the  form 
of  assertinj<  that  water  power  development  has  i>rofjjressed 
satisfactorily  nnder  existinjif  laws.  Mr.  Merrill's  report 
not  only  fails  to  j^ive  the  facts  but  labors  to  support  the 
theory  of  satisfactory  (b»velopnient.  It  was  (jniekly 
seized  upon  by  Mr.  IMnchot  for  the  purpose.  Mr.  Pin- 
chot  sent  out  a  letter  in  opposition  to  pending  water 
Ijower  le«!:islation  to  the  newspapers  of  the  count i-y  soon 
after  the  report  appearcnl  from  which  letter  the  follow- 
in*::  parajjjraph  is  (pioted : 

'The  water  power  men  charge  that  conserva- 
tion hampers  development.  The  admirable  recent 
report  of  Secretary  Houston  (Merrill)  shows,  on 
the  contrary,  that  the  most  rapid  development  is 
in  the  national  forests,  wliere  conservation  is  best 
enforced." 

In  ajjparent  support  of  the  theory  of  satisfactory 
development  the  report  says  (  Part  I,  page  12)  : 

'T'he  proportion  of  water  power  which  is  used 
in  public  service  operations  is  more  than  twice  as 
great  as  the  proportion  of  other  sources  of  power." 

This  does  not  indicate  large  water  power  develop- 
ment, though  hastily  read  it  might  seem  to  do  so.  When 
discussing  developed  power  Mr.  Merrill  does  not  confine 
himself  to  water  jiower;  he  brings  in  as  he  says  "all 
power  all  uses".  The  quoted  statement  means  that  of  the 
whole  volume  of  developed  power  from  all  sources  the 
public  utility  business  has  taken  a  larger  proportion  of 
the  Vunitrd  amount  of  water  power  develop(»d  than  it  has 
of  the  larfic  amount  of  power  otherwise  developed.  This 
is  undoubtedly  true.  Public  ntility  enterprises  have  thus 
far  be<Mi  better  able  to  develop  water  power  under  diflR- 


39 


culties  than  anybody  else.  Public  utility  enterprises 
nnder  the  modern  system  of  organization  have  estab- 
lished credit  basetl  upon  existing  properties  and  estab- 
lished earnings.  They  are  able  to  use  water  power 
directly  in  their  business,  and  therefore  have  an  assured 
market  for  the  power  generated.  Hut  the  fact  that  con- 
<litions  surrounding  water  power  development  have  been 
such  (due  to  inadeiiuate  laws)  as  practically  to  prohibit 
development  except  by  companies  having  established 
credit  based  upon  other  properties  and  business  (like 
public  utility  concerns)  does  not  indicate  that  develop- 
ment has  been  satisfactory  but  exactly  the  contrary, 
since  it  shows  that  development  for  other  important  uses 
has  been  held  back. 

Again  on  the  same  page  the  report  says: 

"The  rate  of  increase  in  water  power  develop- 
ment during  these  last  three  years  for  public  scrr- 
ii'c  use  has  btn^n  three  times  as  great  as  the  rate  of 
increase  in  steam  power." 

Here  once  more  the  reference  is  to  power  used  in  pub- 
lic servU-e.  Moreover  the  rate  of  increase  is  without  sia- 
nilicance  when  it  is  remembered  that  the  volume  of 
l)ower  otherwise  generated  is  very  large  while  the  volume 
of  water  power  is  relatively  small.  A  slight  actual  in- 
crease in  the  latt(»r  makes  a  considerable  rate  of  increase 
while  the  former  being  large  in  volume  might  actualh'  be 
considerably  increase<l  without  a  large  rate  of  increase. 

The  same  principle  applies  to  the  author's  elabora- 
tion of  percentage  increase  of  water  power  development 
in  various  sections.     He  says  (Part  I,  p.  38)  : 

"If  water  power  be  considered  apart  from  all 
other  sources  of  powder,  the  Western  States  are 
found  to  occupy  a  still  more  commanding  posi- 
tion.    While  water  i)ower  development  in  the  re- 


t 


40 


V'.: 


mainder  of  the  United  States  increased  98  per 
cent,  from  1902  to  1912,  it  increased  451  per  cent, 
in  the  Western  States,  or  more  than  four  and  a 
half  times  as  rapidly." 

Mr.  Merrill  takes  from  the  Census  of  1912  figures  for 
water  power  development  in  the  Western  states  (Cali- 
fornia, Oregon,  Washington,  Montana,  Idaho,  Wyoming, 
Nevada,  Utah,  Colorado,  Arizona  and  New  Mexico) 
amounting  to  a  total  of  1,248,676  water  horse-power,  an 
increase  of  451  per  cent,  over  the  development  of  1902, 
which  he  states  to  have  been  226,537  water  horse-power. 
The  developed  water  horse-power  in  the  remainder  of  the 
United  States  in  1912  as  shown  by  Mr.  Merrill  was  3,621,- 
644,  an  increase  of  98  per  cent,  over  1902  when  the  de- 
veloped water  horse-power  in  the  United  States  as  stated 
by  the  report  was  1,831,467  water  horse-power.  The 
actual  increase  in  the  Western  states  from  1902  to  1912 
was,  therefore,  1,022,139  water  horse-power,  and  in  the 
remainder  of  the  United  States  1,790,177  water  horse- 
power. The  high  increased  percentages  shown  are 
entirely  misleading.  In  reality  they  merely  indicate 
that  the  amount  of  early  development  in  1902  in  the 
Western  states  was  relatively  small  as  compared  with 
that  in  the  remainder  of  the  United  States.  The  actual 
figures  quoted  above  which  are  those  really  significant 
make  no  such  "commanding"  showing  for  the  Western 
States.  Moreover  it  should  be  noted  that  the  Western 
States'  increased  water  power  development  of  1,022,139 
horse-power  between  1902  and  1912  was  from  an  avail- 
able total  of  40,002,000  water  horse-power,  the  maximum 
potential  water  power  capacity  of  those  states  ( See  Table 
No.  VI,  seq.),  while  the  1,790,177  water  horse-power 
increase  in  the  remainder  of  the  United  States  was  from 
an  available  total  of  only  20,711,200  water  horse-power, 


I 


41 


the  maximum  potential  water  power  capacity  of  the  re- 
maining states.  Thus  if  rates  of  increase  are  to  be  talked 
of  the  significant  fact  is  that  from  1902  to  1912  the  in- 
creased water  power  development  in  the  Western  states 
represented  only  2.5  per  cent,  of  the  available  water 
horse-power  in  those  states,  while  the  increased  develop- 
ment in  the  remainder  of  the  United  States  during  that 
period  represented  8.0  per  cent,  of  the  available  water 
power  in  the  remainder  of  the  states. 

Tlie  water  poAver  development  in  the  western  states 
has  been  relatively  considerable  as  compared  with  the 
remainder  of  the  United  States,  but  this  is  not  due  to  any 
ability  to  develop  adequately  under  existing  Federal  laws. 
On  the  contrary,  water  power  development  in  the  Western 
States  at  sites  requiring  Federal  permits  has  been  low. 
The  relatively  large  development  in  Western  States  has 
resulted  from  development  in  some  of  the  Western  States 
of  nearly  the  full  extent  of  water  power  available  at  sites 
not  requiring  Federal  permits. 

The  following  table  shows  the  maximum  potential 
water  horse-power  of  the  several  Western  States  at  sites 
requiring  Federal  permits,  the  amount  of  water  horse- 
power developed  at  such  sites,  the  percentage  this  bears 
to  the  water  horse-power  available  at  such  sites,  the 
maximum  potential  water  horse-power  of  the  several 
Western  States  at  sites  not  requiring  Federal  permits, 
the  amount  of  water  horse-power  developed  at  such  sites 
and  the  percentage  tliis  bears  to  the  amount  available  at 
such  sites. 

The  table  is  as  follows : 


I 

i 


i 


\ 


II 


42 


TABLE  No.  VI. 

Water  Power  Development  in  Western  States  Classified 

WITH  Percentages. 


Maximum 
potential  at 
sites  requir- 
ing Federal 
permits. 

Total 

develop*»d 

at  suet) 

sites. 

Per- 
cent- 
age. 

Maximum 

potential  at 

sites  not 

requiring 
Federal 
permits. 

Total 

developed 

at  such 

Bites. 

Per- 
ceutage. 

California 

Oregon 

Washinjrton 

Montana 

8,866,000 
7.820,000 
9,700,000 
4610,000 
1,410,000 
1.785,000 

462.000 
1,886,000 
1,418,000 
2,780,000 

292,000 

324.610 
28,816 
96,798 
61.000 
964 
74,618 

24,680 

45.485 

67.173 

8,075 

H.9 

0.4 
1.0 
1.8 
0.1 
4.2 

•  •  •  • 

1.8 
8.2 
2.4 
1.1 

610.000 

185.000 

290,U00 

280,000 

60,000 

140,000 

46,000 

45,000 

77.000 

180,000 

20,000 

897,515 

128,246 

284.341 

14l.Wt5 

1.580 

17.685 

552 

9.000 

61,776 

86187 

10,845 

78.0 
69.8 
81.0 
50.7 

2.6 
12.6 

1.2 
20.0 

Wyoming 

Colorado 

New  Mexico 

Arizona 

Utah 

Idaho 

67.2 
65.5 
51.2 

Nevada 

40,002,000 

727,164 

1.8 

1,788,000 

1,078,022 

00.4 

From  the  foregoing  it  appears  that  the  relatively  large 
development  of  water  power  in  the  Western  States  has 
been  due  in  large  mensnre  to  the  nse  to  almost  thiMr 
fullest  extent  of  the  water  jjower  available  at  sites  not 
requiring  Federal  permits.  Although  practically  two- 
thirds  of  the  maximum  potential  water  power  of  the 
T'nited  States  is  to  be  found  at  sites  requiring  Federal 
permits  in  the  Western  States,  only  1.8  per  cent,  of  this 
available  water  power  has  been  developed,  while  in  the 
same  states  private  sites  have  been  developed  in  some 
cases  up  to  60,  70  and  in  one  state  up  to  more  than  80 
per  cent,  of  total  capacity. 

These  facts  are  not  brought  out  by  the  report.  They 
do  not  show  satisfactory  development  under  existing 
laws.  They  show  that  in  the  Western  States  water  power 
development  has  been  extensive  wherever  existing  laws 
and  want  of  laws  have  not  stepped  in  to  block  the  way. 

Mr.  Merrill  had  the  data  l>efore  him.  He  says  (Part 
I,  pages  40  and  41 ) : 


43 


"Of  the  1,804,800  water  horse-i>ower  developed 
in  the  Western  States  in  1915,  536,782  horse- 
power, or  29.8  per  cent.,  is  in  plants  occupying 
national  forest  lands  with  some  part — power 
house,  water  conduit,  or  divei'sion  reservoir — of 
the  immediate  generating  i)lant.  No  plants  have 
been  included  if  nothing  more  than  the  transmis- 
sion lines  is  on  the  national  forest.  In  addition  to 
the  above,  hydroelectric  ])laiits  with  a  capacity  of 
218,080  horse-i>ower,  or  12.1  i)er  cent,  are  directly 
dependent  upon  storage  reservoirs  owned  by  the 
operating  companies  or  their  subsidiaries  and  con- 
structed on  national  forest  lands.  The  total  of 
power  developments  thus  utilizing  national  forest 
lands  amounts  to  754,812  horse-power,  or  41.9  per 
cent,  of  the  total  developed  ]»ower  of  the  Western 
States.  In  addition  to  this,  172,760  horse-power 
occupy  public  lands  outside  the  national  forests 
and  72,000  horse-jjower  are  <lirectly  dependent 
upon  storage  i-eservoirs  occupying  such  lands, 
making  a  total  of  244,760  horse-power,  or  13.6  per 
cent,  of  the  total  develo])ed  water  horse-power  of 
the  Western  States.  Of  the  total  developed  power, 
therefore,  999,572  horse-] )ower,  or  55.5  per  cent,  is 
developed  in  i)lants  which  either  occupy  or  are 
directly  dependent  ui)on  the  use  of  public  lands 
of  the  United  States,  as  such  occupancy  and  use  is 
authorized  under  existing  law." 

The  i-ei)oit  nowhere  givi^  detailed  data  showing  the 
999,572  water  horse-j)ower  development  which  he  says 
is  dependent  upon  public  lands  in  the  western  states. 
Table  No.  VI  (supra)  contains  development  figures  taken 
from  the  report's  detailed  lists  and  the  total  at  sites 
requiring  Federal  permits  is  only  727,164.  The  999,572 
water  horse-power  referred  to  in  the  quotation  is  another 
general  estimate,  unsupported  by  actual  data  in  the 
Merrill  report.  Accepting  these  very  figures,  how^ever, 
the  report  shows  inadequate  development  at  public  land 
sites.      It   omits   one   essential    fact,    namely,    that    the 


I 


I 


/ ; 


44 


available  water  power  at  sites  requiring  Federal  permits 
in  the  western  states  amounts  to  nearly  thirty  times 
the  amount  available  at  sites  not  requiring  such  permits. 
The  actual  figures  (See  Table  No.  VI)  are:  Available  at 
sites  requiring  Federal  permits,  40,002,000  horse-power; 
at  sites  not  requiring  such  permits,  1,782,000  horse- 
power. The  report  says  that  55.5  per  cent,  of  existing 
development  in  western  states  is  at  public  sites  (or  in 
some  way  requiring  use  of  public  lands).  Even  if  this 
were  true  (as  stated  he  nowhere  supports  it  by  detailed 
data)  it  must  be  clear  that  development  equal  or  nearly 
equal  in  amount  at  the  two  classes  of  sites  constitute  a 
small  and  inadequate  use  of  the  public  sites  which  are 
numerous  and  of  high  capacity;  and  as  Table  No.  VI 
shows,  an  extraordinary  development  at  private  sites 
which  are  less  numerous  and  of  less  capacity. 

Mr.  Merrill's  own  figures  given  in  the  above  quota- 
tions thus  clearly  tell  the  story  of  inadequate  develop- 
ment where  Feleral  permits  are  required. 

The  report  fails  to  bring  out  these  facts,  but  they 
are  really  well  known.  Hon.  Franklin  K.  Lane,  Secre- 
tary of  the  Interior,  on  April  29,  1914,  wrote  to  the  Chair- 
man of  the  House  Committee  on  Public  Lands  as  fol- 
lows : 

"Under  existing  conditions,  due  largely  to  the 
inadequate  laws  relating  to  the  matter,  a  condi- 
tion of  stagnation  exists  and  our  water  power  re- 
sources are  not  fully  used." 

The  Committee  on  Public  Lands  of  the  House  of 
Representatives  held  hearings  on  this  subject  from  April 
30  to  May  8,  1914,  and  Mr.  Merrill  was  one  of  the  wit- 
nesses.  The  committee  reported  that  the  legislative  ac- 
tion  to  correct  the  condition  of  stagnation  was  imme- 
diately necessary  and  stated  that  an  ^'absolute  impasse 
has  been  reached^'  in  the  development  of  power  on  the 
public  lands. 


45 


IV. 

PROPoimoN  OF  Developed  Water  Power  in  Private 

Ownership. 

The  Senate  inquired :  What  proportion  of  developed 
water  power  is  owned  and  controlled  by  private  compa- 
nies and  corporations?  The  report  does  not  answer  this 
question  directly.  It  says  that  of  the  4,870,320  water 
horse-power  developed  up  to  and  including  1912,  2.7  per 
cent,  was  in  municipal  central  stations.  This  amounts 
to  131,498  water  horse-power.  In  Table  54,  which 
includes  development  up  to  January  1,  1916,  it  includes 
two  classes  of  public  water  power  development,  namely, 
municipal  central  stations  and  the  Reclamation  Service. 
The  total  of  the  two  classes  taken  from  the  table  is 
234,015  water  horse-power,  or  only  3.5  of  the  water  horse- 
power the  report  estimates  as  having  been  developed,  or 
4.3  per  cent,  of  the  water  power  development  shown  in 
the  lists.  Either  figure  is  significant  as  showing  how 
little  has  been  accomplished  in  the  way  of  water  power 
development  by  purely  public  agencies,  and  consequently 
how  little  dependence  can  be  placed  in  such  agencies  in 
planning  for  the  adequate  development  of  this  great  nat- 
ural resource.  Public  control,  meanwhile,  is  retained 
by  regulation  of  rates  and  service  in  vogue  in  almost  all 
the  states. 

V. 

No  Water  Power  Monopoly  Exists  or  is  Threatened. 

The  Senate  resolution  asks  for:  Any  facts  bearing 
upon  the  question  as  to  the  existence  of  a  monopoly  of 
hydroelectric  power  in  the  United  States. 

The  leading  facts  bearing  upon  this  question — and 
showing  that  hydroelectric  power  monopoly  neither  exists 
nor  is  threatened — have  already  been  presented  in  the 
answers  to  the  other  questions  propounded  by  the  Senate. 
They  will  here  be  briefly  restated. 


P 


A(\ 


1.  Of  the  available  water  horsepower  in  the  United 
States,  60,713,200  water  horse-power,  only  6,538,434 
water  horse-power  at  tlie  hijjliest  estimate  (that  of  Mr. 
Merrill)  has  been  developed,  or  only  10.7  per  cent, 
('learly  the  available  water  horse-power  of  the  country 
has  not  been  monopolized,  since  10.7  per  cent,  is  not 
en(nio;h  to  constitute  monopoly,  even  if  the  amount  de- 
veloped were  owned  by  a  single  corporation  or  interest. 
The  fact  is,  however,  as  has  been  shown,  that  the  owner- 
ship is  widely  distributed. 

2.  The  concern  "controlling''  the  largest  amount  of 
developed  water  horse-power  "controls"  according  to  the 
report  only  340,211  water  horse-power,  or  only  5.2  per 
(*ent.  of  the  water  horse-power  he  says  has  been  devel- 
oped and  only  about  half  of  one  per  cent,  of  the  amount 
capable  of  development.  This  certainly  does  not  indicate 
monopoly. 

3.  The  18  corporations  listed  in  the  report  as  con- 
trolling the  largest  amount  of  water  horse-power  control 
according  to  its  statement  only  2,350,991  water  horse- 
power  or   a    little   over   35    per   cent,    of    the   amount 
it    says    has    been    developed    and    only    about    3    per 
cent,    of    the    amount    capable    of    development.      This 
would  not  constitute  monopoly  in  any  accepted   sense 
of  the   term   even   if   the   18   corporations   were   them- 
selves   controlled     by    a    single    interest.       The    fact, 
however,    is    that    the    corporations    named    are    large, 
independent     concerns,     mainly     occupied     in     public 
utility  service,  their  operations  widely  scattered  through- 
out the  country,  and  their  rates  and  service  subject  to 
regulation  by  the  state  in  which  they  operate.     It  is  not 
an  evidence  of  monopoly  that  a  great  public  utility  com- 
pany whose  rates  and  service  are  so  rigidly  regulated 
by  public  authority  as  to  require  it  to  economize  at  every 
possible  point,  has  been  able  to  reduce  its  cost  of  power 


47 


uecessari'  to  its  business  by  developing  water  power. 
Yet  the  showing  Mr.  Merrill  has  been  able  to  make  even 
of  a  largi»  amount  of  water  power  in  the  control  of  a 
single  corporation  or  group  of  corporations  has  been  in 
connection  with  operations  of  exactly  this  sort.  This  cer- 
tainly is  not  monopoly,  present  or  threatened,  and  the 
fact  that  Mr.  Merrill  in  his  search  for  evidences  of 
monopoly  was  unable  to  make  any  other  or  further  show- 
ing is  evidence  that  the  monopoly  he  sought  does  not 
exist. 

4.  Hydroelectric  development  of  important  extent 
naturally  requires  very  large  capital  expenditures.  To 
jdace  a  dam  in  the  Mississippi  River  at  Keokuk  and 
develop  water  power  there  for  instance  cost  approx- 
imately 128,000,000.  Obviously  this  could  not  be  accom- 
plished by  a  small  company  or  by  a  number  of  small  com- 
l)anies.  The  200,000  water  horse-power  created  by  the 
dam  could  not  have  been  created  b}'  any  number  of  little 
dams  put  in  by  numerous  smaller  companies.  The  fact 
therefore  that  extensive  water  power  developments  have 
been  the  work  of  important  and  well  known  concerns  is 
of  no  significance  as  relating  to  the  question  of  monopoly. 

Mr.  Merrill  in  his  report  has  constantly  confused  size 
and  consuming  power  with  "monopoly"  and  "concentra- 
tion''. The  companies  in  the  list  of  18  referred  to  do  a 
large  jjublic  utility  business.  They  are  obliged  by  their' 
business  to  seek  sources  of  power  in  order  to  supply  the 
demand  for  power  in  the  centers  they  serve.  To  do  this 
they  have  developed  water  power  where  the  conditions 
permitted.  Many  of  the  companies  in  the  list  are  active 
competitors.  They  do  not  compete  with  each  other  in 
given  localities  for  this  is  usually  prevented  by  law.  The« 
State  of  >Visconsin  for  example  has  had  a  public-service 
commission  for  about  10  years  and  during  that  time  the 
utilities  of  that  State  have  been  protected  in  their  exist- 


48 


iii 


M 


i 


ing  territory  against  competition  by  new  projects.  Be- 
fore competition  can  be  initiated  a  certificate  that  public 
convenience  and  necessity  will  be  promoted  thereby  must 
be  obtained  from  the  Railroad  Commission  of  the  State 
of  Wisconsin.  During  all  of  the  10  years  there  has 
not  been  granted  one  single  certificate  of  convenience  and 
necessity,  and  yet  no  commission  in  this  country  is  more 
highly  considered  or  has  greater  influence.  While  local 
competition  is  thus  generally  prohibited  and  undesirable, 
the  companies  named  are  active  competitors  for  the  loca- 
tion of  power  using  industries  near  the  centers  they 
serve  and  competitors  also  in  the  purchase  and  manage- 
ment of  local  public  utility  enterprises. 

It  is  difficult  to  deal  patiently  with  the  suggestion 
that  such  facts  as  these  constitute  evidences  of  monopoly. 

The  subject  will  be  further  treated  in  dealing  with 
that  portion  of  the  report  which  presents  supposed  evi- 
dences of  "concentration  of  control"  in  the  production 
of  power  from  all  sources. 

VI. 

Mr.  Merrili/s  Misleading  Analysis  of  the  Electrical 

Industry. 
The  foregoing  deals  with  the  facts  relating  to  water 
powers  in  the  United  States,  the  sole  subject  of  the  Senate 
resolution.  Fully  85  per  cent,  of  the  Merrill  report,  how- 
ever,  is  taken  up  with  a  voluntary  presentation  of  data 
and  argumentative  discussion  relating  to  public  utility 
corporations  and  public  service  operations.  This  large 
portion  of  the  report  will  be  briefly  examined  and  the 
leading  facts  concerning  the  public  utility  business  under 
modern  conditions  will  be  outlined.  It  will  be  shown 
that  Mr.  Merrill  has  presented  some  of  these  facts  and 
ignored  others;  that  he  has  misinterpreted  the  rapid 
growth  and  magnitude  of  present-day  public  service  opera- 
tions, which  are  strikingly  shown  by  existing  and  reliable 


49 


statistical  information  made  use  of;  that  he  has  con- 
sidered  such  growth  and  magnitude  as  evidence  of  a  mon- 
opolistic tendency  which  does  not  exist  in  any  accurate 
sense  of  the  term,  and  which  can  not  exist  owing  to  the 
mature  and  conditions  of  public  utility  service. 

That  Mr.  Merrill  approaches  this  branch  of  his  inquiry 
with  an  evident  prejudice  is  shown  by  numerous  ex- 
pressions in  his  text.  For  instance,  the  author  in  dis- 
cussing the  cost  of  public  utility  central  power  stations 
says  (Part  I,  page  13)  : 

"Furthermore,  it  appears  to  he  the  general 
practice  of  puhlic-utility  corporations  to  denomin- 
ate as  'cost  of  construction^  the  amount  which 
will  make  assets  equal  to  liabilities  on  their  bal- 
ance sheets.  Since  stocks  and  bonds  are  carried 
on  such  balance  sheets  at  par,  the  so-called  'cost 
of  construction'  is  scarcely  more  than  net  capitali- 
zation. In  the  majority  of  cases  it  would  be  more 
nearly  correct  to  call  this  term  'assumed  present 
value  of  properties'  than  to  call  it  'investment  in' 
or  'cost  of  such  properties." 

Mr.  Merrill's  discussion  of  cost  of  construction  is 
avowedly  based  upon  the  data  presented  in  the  Census 
Bureau's  report  of  1912  in  "Central  Electric  Light  and 
Power  Stations  and  Street  and  Electric  Railways".  This 
report,  in  presenting  data  relating  to  cost,  contains  the 
following  unbiased  statement  which  may  properly  be 
compared  with  the  expression  quoted  above.  The  state- 
ment from  the  Census  report  of  1912  is  as  follows : 

"Cost  of  Construction  and  Equipment. — The 
schedule  used  at  the  census  of  1902  called  for  a 
separate  statement  as  to  the  cost,  during  the  year 
and  to  date,  of  land;  buildings;  machinery,  tools, 
and  implements  within  stations;  overhead  electric 
service  construction;  underground  electric  service 
construction;  lamps,  motors,  meters,  and  trans- 


'^r 


50 


/^! 


II 


, 


loiiuers,  wiled  for  use;  supplies  of  every  descrip- 
tion on  hand ;  and  miscellaneous  equipment.     The 
object  of  these  inquiries  was  to  ascertain  the  total 
cost  of  the  plant  and  equipment,  and  the  expen- 
ditures during  the  year  for  extensions,  additions, 
and  repairs.     It  was  presumed  that  the  electric 
companies  kept  an  account  of  this  kind    but  a 
majority  contended  that  it  was  impossible  to  re- 
port  the  cost  in  such  detail,  and  manv  asserted 
that  they  had  no  data  from  which  even  the  total 
cost  of  the  plant  and  etpiipment  to  date  could  be 
estimated  with  a  fair  degree  of  accuracy.     More- 
over,  a  considerable  number  of  the  electric  stations 
have  changed  ownership  during  recent  vears,  and 
the  purchase  price  often  has  little  relation  to  the 
actual  cost  of  the  plant,  and  in  fact  seldom,  if  ever 
represents  this  cost.     The  transfer  is  frequentlv 
made  through  the  exchange  of  stock  or  by  some 
other  arrangement  whereby  it  is  impossible  to  as- 
rertain  the  money  equivalent.  In  view  of  these  con- 
ditions the  attempt  to  ascertain  the  cost  of  con- 
struction in  such  detail  was  abandoned  in  1907,  but 
in  an  effort  to  preserve  the  comparative  value  of 
the  statistics  the  total  cost  of  the  plant  and  equip- 
ment  to  date  and  the  cost  of  construction  during- 
the  census  year  were  requested.     Even  this  niodn 
hcation  of  the  inquiry  was  unsatisfactory,  and  in 
1912  It  was  still  further  simplified,  and  only  the 
total   cost   of  construction,   ecjuipment,   and^  real 
estate  was  called  for. 

Many  and  varying  factors  enter  into  the  cost 
of  plants  and  equipment.  Sites  and  rights,  which 
in  one  instance  may  cost  but  little,  in  another  mav 
be  very  expensive.  The  equipment  of  a  station 
designed  and  prepared  to  supply  current  to  a  larn^e 
city  or  thickly  settletl  communitv  is  quite  unlike 
that  of  a  station  transmitting  electricitv  consider- 
able distances  and  selling  in  bulk  to  but  few  cus- 
tomers. 

Notwithstanding  these  limitations  the  data  pre- 
sented in  the  following  table  may  l)e  accepted  as 


51 


presenting  a  fair  approximation  of  the  growth  of 
the  industry  in  respect  to  cost  of  construction  and 
equipment  for  the  United  States,  for  the  several 
geographic  divisions,  and  for  the  individual 
states''  (Central  Electric  Light  and  Power  Sta- 
tions and  Street  and  Electric  Railways,  1912,  pp. 
r>4-()5). 

Notwithstanding  his  own  criticism  of  the  data  for 
cost  of  construction  of  commercial  central  stations  and 
the  explanation  by  the  Census  Bureau  above  quoted,  Mr. 
Merrill  does  not  hesitate  to  use  these  data  to  present  an 
unfavorable  comparison  with  the  reported  cost  of  munic- 
ipal central  stations.  In  the  absence  of  prejudice  he 
would  not  have  been  able  to  describe  the  data  as  unre- 
liable in  one  breath  while  quoting  it  for  unfavorable 
comparison  in  the  next.  The  comparison  itself  will  be 
dealt  with  later. 

Again  (Part  I,  p.  15),  Mr.  Merrill  says: 

"In  contradistinction  to  the  corporate  rela- 
tionships shown  through  ownership,  lease,  or 
management,  by  means  of  which  the  connection 
is  definite  and  direct,  the  interrelations  which  arc 
evidenced  by  common  directors  are  indefinite, 
and  the  extent  of  control  cannot  be  quantitively 
determined  except  in  those  instances  where  a  ma- 
jority of  the  directorate  is  common  to  two  cor- 
porations. Where  the  preceding  data  shoiv 
accomplished  control,  these  data  show  potential 
control,  a  marked  tendency  toward  association  or 
community  of  interests,  particularly  between  the 
principal  holding  companies,  that  cannot  he  viewed 
without  concern,'^ 

This  of  course  is  mere  argument.  The  natural  atti- 
tude of  an  official  and  unbiased  report  would  be  to  pre- 
sent the  facts.  To  assert  that  "interrelations  which  are 
evidenced  by  common  directors  are  indefinite'^  but  shoio 


I  i 


ill 


52 

potential  control  is  nothing  but  assumption.  The  fact 
of  occasional  common  directors  as  will  presently  be 
shown  has  an  altogether  different  and  much  simpler  ex- 
planation. The  question  as  to  whether  or  not  the  exist- 
ing facts  can  be  viewed  with  or  without  concern  belongs 
obviously  in  the  realm  of  debate,  not  in  that  of  scientific 
inquiry. 

Again  (Part  I,  page  62),  in  discussing  the  alleged 
"controP'  of  undeveloped  water  power  (heretofore  re- 
ferred to),  the  report  says: 

"In  connection  with  the  other  studies  made 
for  this  report  considerable  information  was  col- 
lected concerning  the  amount  of  undeveloped 
power  reported  to  be  in  the  ownership  or  control 
of  public-service  corporations.  Time  has  not  been 
available  for  verifying  the  data  or  for  determin- 
ing whether  or  to  what  degree  such  undeveloped 
water  powers  are  claimed  by  those  interests 
which  control  the  majority  of  the  developed  pow- 
ers. The  data  show,  however,  that  120  out  of 
about  1,500  public-service  corporations,  the  devel- 
opments of  which  have  been  listed  in  this  report, 
claim  to  own  or  control  a  total  of  3,683,000  unde- 
veloped water  horse-power,  or  80  per  cent,  of  the 
total  water  power  at  present  developed  by  public- 
service  corporations. 

Whether  or  not  these  figures  are  wholly  reli- 
able, it  may  be  pertinent  to  remark  that  those 
who  lay  claim  to  such  extensive  ownership  or 
control  of  undeveloped  power  sites  are  hardly  in 
a  position  to  contend  that  any  legislation  or  lack 
of  legislation  or  any  administrative  policies  of 
the  executive  departments  of  the  Government 
should  be  held  responsible  for  the  stagnation  in 
water  power  development  which  they  allege  ex- 
ists. The  fact,  if  it  is  a  fact,  that  a  comparatively 
few  corporations  hold  unused  nearly  4,000,000 
water  horse-power  would  of  itself  furnish  suffi- 
cient explanation.^' 


53 

If  Mr.  MerrilPs  data  is  as  unreliable  and  incomplete 
as  he  says  it  is— and  as  has  previously  been  shown  it  is 
even  more  so— he  could  not,  in  the  absence  of  prejudice, 
base  "conclusions"  upon  it.  Yet  he  does  so  base  them, 
opening  the  door  to  Mr.  Pinchot  who  quickly  seized  the 
opportunity  offered  and  spread  the  argument  broadcast 
without  any  reservation  whatever. 

The  evident  bias  of  the  report  is  also  shown  by  the 
curious  method  used  in  dealing  with  the  income,  ex- 
penses, debt  and  dividends  of  a  public  utility  business. 

Under  the  heading  "Income,  Expenses,  and  Surplus", 
the  report  says  (Part  I,  page  48)  : 

"For  purposes  of  comparison  the  data  are 
given  in  the  aggregate,  per  horse-power  of  pri- 
mary power  installed^  and  per  horse-power-year 
of  electric  power  generated/^ 

On  the  following  page  the  report  says : 

"Net  income  per  unit  of  installation,  when 
compared  with  cost  of  capitalization  for  the  same 
unit,  indicates  the  average  return  upon  both  con- 
tributed funds  (stock)  and  borrowed  funds 
(bonds).  Surplus  in  the  same  unit  indicates  the 
return  or  profit  or  earned  dividends  upon  the  con- 
tributed funds.  These  are  the  relations  in  which 
the  investor  is  chiefly  interested.  Net  income  and 
surplus  per  unit  of  output,  on  the  other  hand, 
when  compared  with  gross  income  for  the  same 
unit,  indicate  what  proportions  of  the  rates  paid 
by  the  public  for  the  service  rendered  are  retained 
by  the  public  utility  to  pay  interest  upon  debts 
and  dividends  upon  stocks.  These  are  the  rela- 
tions in  which  the  consumer  is  interested." 

The  author  follows  this  in  Part  II  by  tables  in 
which  he  estimates  income,  debt,  dividends,  etc.,  on  the 
basis  of  generated  power ;  for  example,  he  says  that  com- 
mercial central  stations  annually  earn  $165.00  per  horse- 


54 


i 


1 1 


power-year  generated.  This  is  the  figure  according  to 
Mr.  Merrill  in  which  the  '^consumer  is  interested'^ 

Such  a  statement  could  only  result  from  one  of  two 
causes,  namely,  gross  ignorance  of  the  electrical  industry 
or  extreme  eagerness  to  exaggerate  its  income  and  profits. 
The  nature  of  the  electrical  business  requires  installa- 
tion up  to  the  maximum  demand  (popularly  known  as 
"rush  hour"  business).  Without  such  installation  serv- 
ice would  be  impossible.  The  fact  that  part  of  the  time 
generators  must  stand  idle  is  one  of  the  great  difficulties 
in  the  industry,  inherent  in  its  physical  and  economic 
conditions.  If  power  could  be  stored  during  periods  of 
minimum  demand  and  utilized  at  maximum  demand 
electricity  could  be  sold  at  greatly  reduced  cost,  but  this 
is  as  yet  impracticable.  Consequently  installed  power 
and  not  generated  power  is  always  used  as  a  basis  for 
unbiased  estimates  of  relative  income,  expenses,  etc. 

A  simple  example  may  be  taken  from  the  electric 
lighting  industry.  The  consumer  requires  electric  power 
for  lighting  in  varying  amounts  during  the  day.  Some 
parts  of  the  day  he  uses  no  light;  again  one  or  two  lights 
may  be  sufficient;  later  every  light  in  the  house  may  be 
used.  The  habit  of  consumers  in  respect  to  lighting  are 
strikingly  similar.  Generally  speaking  they  all  light  up 
their  houses  at  about  the  same  time  and  to  about  the 
same  extent.  From  these  causes  and  others  of  a  similar 
nature  the  varying  demand  for  current  arises,  the  most 
striking  and  troublesome  feature  of  the  electric  lighting 
business.  When  generally  speaking  all  the  consumers 
are  burning  all  their  lights  the  demand  on  the  lighting 
plant  is  very  heavy.  This  is  known  as  the  period  of 
maximum  demand  or  the  "peak  of  the  load".  This 
period  may  continue  for  only  an  hour,  or  even  less,  hut 
the  lighting  plant  miist  have  generators  capaible  of  pro- 
ducing the  required  volume  at  the  instant  it  is  called  for 


oo 


(storage  being  in  the  present  state  of  the  art  impractic- 
able for  such  purposes).  Accordingly  the  installed  ca- 
pacity of  the  plant  must  be  large  enough  to  supply  the 
highest  or  peak  load  demand;  and  also  the  cost  of  the 
plant  (i.  e.,  the  investment)  will  be  the  cost  of  producing 
such  an  installation ;  the  expenses  of  the  plant  will  be  the 
expense  of  maintaining  such  an  installation  and  keeping 
it  ready  for  instant  use;  and  the  income  of  the  plant  will 
be  a  certain  rate  of  return  (usually  fixed  and  limited  by  a 
Public  Service  Commission)  on  the  amount  of  the  total 
investment. 

Mr.  Merrill  admits  that  the  rate  of  return  on  the 
whole  investment  is  a  matter  of  prime  interest  to  the 
investor,  and  that  therefore  he  will  wish  to  know  the 
income  of  the  plant  per  unit  of  installation.  But  he 
declares  that  the  consumer  is  not  interested  in  this,  but 
in  the  income,  etc.,  per  unit  of  power  generated. 

The  absurdity  of  this  statement  is  apparent.  The 
consumer  is  interested  in  the  rate  he  pays  for  service. 
This  rate  is  based  on  the  cost  of  operating  the  plant  plus 
the  return  allowed  the  investor  who  has  created  the  plant. 
Hundreds  of  court  and  commission  decisions  have  placed 
this  beyond  controversy.  The  consumer,  no  less  than  the 
investor,  is  therefore  interested  in  the  amount  of  the 
investment  and  in  the  facts  relating  to  income,  expenses, 
etc.,  of  the  whole  plant.  No  court  or  commission  would 
hear  him  a  moment  on  the  relation  of  the  income  of  the 
company  to  the  amount  of  power  generated.  Such  data 
would  not  bear  on  the  question  of  whether  or  not  the 
investor  was  receiving  too  high  or  too  low  a  return,  or 
charging  too  high  or  too  low  a  rate,  because  in  such  testi- 
mony the  investors'  additional  service,  of  always  being 
ready  to  carry  the  peak  of  the  load,  and  of  carrying  it 
when  required,  would  be  ignored  and  that  is  a  prime 
requirement  of  the  business.    The  situation  described  is 


Hi 


56 


technically  known  as  the  "load  factor''.  Mr.  Merriirs 
effort  to  discuss  the  facts  of  public  utility  service  without 
taking  this  into  account  is  indefensible.  All  the  very 
large  part  of  his  treatment  of  the  subject  in  which  he 
discusses  the  income,  expenses,  etc.,  on  the  basis  of 
power  generated  is  therefore  valueless  or  worse. 

Enough  has  been  quoted  to  show  the  bias  of  the 
report.  Attention  also  is  called  to  an  extraordinary 
shifting  and  reshifting  of  the  power  totals  used  for  pur- 
poses of  comparison.  In  describing  his  report  the  author 
says  (Part  I,  page  11)  : 

"The  report  deals  with  the  amount  of  devel- 
oped power  in  all  the  States,  whether  water 
power,  steam  power,  or  gas  power,  and  whether 
developed  by  public-service  corporations,  by  in- 
dustrial corporations,  or  by  municipalities." 


I 


When  announcing  the  total  power  used  for  his  compari- 
son, however,  he  says  (Part  I,  page  12)  : 

"The  total  primary  power  under  development 
in  the  United  States  in  1912  in  commercial  and 
municipal  central  stations,  street  and  electric 
railways,  and  in  manufacturing  plants  as  esti- 
mated and  reported  for  the  year  was  30,448,246 
horse-power." 


I ; 


Later  on  in  presenting  data  which  he  says  show  "con- 
centration of  power  control"  he  deals  with  power  used 
in  public  service  operations  only.  This  total  he  places 
at  about  14,000,000  horse-power. 

The  fact  that  he  thus  uses  at  least  three  dif- 
ferent bases  for  his  comparisons  requires  the  greatest 
care  in  examining  his  report  and  in  drawing  conclusions 
from  the  percentages  he  freely  uses.  Many  of  his  tables 


57 


fail  to  show  on  their  face  what  basis  for  comparison  is 
being  used  in  that  particular  case. 

Complete  figures  showing  the  amount  of  power  actu- 
ally developed  in  the  United  States  are  not  to  be  found 
in  the  report,  notwithstanding  the  broad  language  of  the 
first  announcement  quoted  above.  It  would  be  exceed- 
ingly difficult,  perhaps  impossible,  to  secure  an  accurate 
total.  Various  estimates  have  been  made,  varying  from 
100,000,000  to  150,000,000  horse-power.  Figures  recently 
made  public  by  the  Bureau  of  Census  containing  sum- 
maries for  1914  give  22,537,129  horse-power  for  manufac- 
turers alone,  only  about  7,500,000  less  than  the  total  used 
by  Mr.  Merrill  when  referring  as  he  says  to  "all  power  all 
uses".  The  figure  given  by  Mr.  Merrill  is  unquestionably 
inaccurate  and  misleading,  and  all  that  portion  of  his 
report  in  which  percentages  are  based  upon  his  estimate 
of  total  primary  power  developed  must  of  necessity  be 
rejected  as  valueless  for  any  scientific  purpose. 

His  later  comparisons,  where  he  deals  only  with  power 
used  in  public  service  operations  are  more  reliable  if  the 
basis  of  his  comparison  is  clearly  in  view,  but  with  this 
basis  in  view  the  percentages  he  presents  are  in  many 
cases  without  especial  significance.  For  illustration,  if 
85  public  service  corporations  "controlled"  65.8  per  cent, 
of  the  total  power  developed  from  all  sources  in  the  United 
States,  a  highly  significant  situation  would  undoubtedly 
be  shown ;  but  the  fact  that  85  public  service  corporations 
"control"  65.8  per  cent,  of  the  total  power  used  in  public 
service  operations  (as  stated  in  the  report)  (Part  I, 
page  58)  is  without  special  significance  especially  when 
it  is  noted  that  about  the  same  percentage  of  urban  popu- 
lation is  centered  in  85  leading  cities,  indicating  (what 
everybody  knows)  that  population  and  demand  for 
public  utility  service  naturally  go  hand  in  hand. 


i 


58 


i 


§ 


The  author  so  frequently  shifts  his  bases  for  com- 
parison that  the  result  is  confusing  and  misleading. 
This  defect  runs  throughout  the  report  and  requires 
close  scrutiny  on  the  part  of  one  seeking  in  his  report 
the  a(!tual  facts  relating  to  power  in  the  United  States. 

Reference  has  already  been  made  to  comparison  in 
the  report  of  the  cost  of  construction  of  commercial  and 
municipal  plants.  On  page  45  of  Part  I  of  the  report 
Mr.  Merrill  gives  the  cost  per  horse-power  of  the  installa- 
tions of  municipal  central  stations  for  the  years  1912, 
1907  and  1902  as  |138,  |133  and  |138,  respectively,  and 
compares  these  figures  with  ?301,  $279  and  $286,  respect- 
ively, per  horse-power  installation  in  commercial  central 
stations.  He  contends  that  the  figures  for  the  municipal 
central  stations  show  more  accurately  the  actual  cost  of 
such  enterprises  per  horse-power  than  do  the  figures  for 
the  commercial  central  stations,  intimates  that  in  the  case 
of  commercial  stations  the  cost  has  been  "watered",  but 
nevertheless  urges  that  the  figures  show  that  municipal 
plants  have  been  mori^  conservatively  financed. 

There  are  two  reasons  for  the  high  cost  of  commercial 
systems. 

First,  commercial  stations  are  greater  users  of  water 
power  for  generating  purposes  than  are  municipal  plants 
and  it  is  well  known  that  the  cost  of  water  power  installa- 
tions is  far  higher  than  that  of  steam  power  installations. 
Mr.  Merrill  states  that  out  of  4,870,320  water  horse-power 
developed,  48  per  cent.,  or  2,337,753  water  horse-power, 
are  used  in  commercial  central  stations,  and  that  only 
2.7  per  cent.,  or  131,498  water  horse-power,  are  used  in 
municipal  central  stations. 

Second,  municipal  systems  are  compact  and  their 
consumers  are  closely  grouped.  Their  lines  do  not  run 
for   hundreds   of   miles   over   sparsely  settled  country. 


59 


Commercial  systems  are  obliged  to  operate  in  such  terri- 
tory, and  this  adds  to  the  cost  of  installation.     Available 
figures  at  hand  for  19  public  service  companies  show  a 
total  of  nearly  20,000  miles  of  transmission  line,  with  cost 
of  construction  running  from  a  maximum  of  $19,500  per 
mile  to  a  minimum  of  |3,000  per  mile.     The  average 
shown  by  these  figures  is  about  $11,000  per  mile.     On 
this  basis  the  total  investment  of  the  19  companies  in 
transmission  lines  is  more  than  $200,000,000,  or  nearly 
10  per  cent,  of  the  total  investment  in  commercial  cen- 
tral stations.     No  such  cost  is  encountered  by  municipal 
stations  operating  as  they  do  in  restricted  territory  only. 
Having  used  the  census  figures  relating  to  cost  of  con- 
struction so  as  to  present  a  comparison  between  com- 
mercial central  stations  and  those  municipally  owned, 
unfavorable   to   the   former,   the   author  fails   to   com- 
ment  upon   other   figures   in   the   same   census   report 
which  are  significant,  and  which  exhibit  municipal  opera- 
tions in  a  less  favorable  light.    On  pages  51  and  52  the  re- 
port deals  with  relative  figures  of  municipal  and  com- 
mercial plants  including  "income  and  operating  expense'*. 
It  states  that  the  gross  income  per  installed  horse-power 
iu  municipal  stations  averages  $42  for  the  United  States. 
It  had  previously  shown  that  the  gross  income  in  com- 
mercial central  stations    was   $40   per   installed  horse- 
power.    Therefore  the  figures  show  that  municipalities 
are  charging  higher  rates  for  their  product  than  privately 
owned  companies. 

Mr.  Merrill's  figures  also  show  that  municipal  plants 
are  extravagantly  operated  because  under  the  heading  of 
"Total  Expenses''  it  appears  that  it  required  84.5  per 
cent,  of  the  gross  revenues  of  municipal  plants  to  pay 
operating  expenses,  while  the  commercial  stations  were 
operated  on  the  basis  of  62.5  per  cent,  of  gross  income. 
Mr.  Merrill  does  not  mention  these  figures  when  drawin*' 


m 


60 


conclusions  from  bis  study  of  the  census  figures  relating 
to  municipal  power  plants. 

A  very  large  part  of  the  report  deals  with  the 
supposed  "concentration  of  power  control".  The  report 
as  has  been  shown  assumes  to  deal  with  "all  power  all 
uses".  In  discussing  "concentration"  however  this 
method  or  scope  is  abruptly  dropped  and  power  of  all 
kinds  used  in  public  service  operations  only  is  referred 
to.  Having  discussed  a  total  of  about  30,000,000  horse- 
power in  other  portions  of  the  report  the  impression 
might  easily  be  had  that  the  percentages  dealt  with  under 
'^concentration''  were  percentages  of  this  total.  It  is  im- 
portant to  observe  that  they  are  not.  They  are  percent- 
ages of  power  used  in  public  service  operations,  a  total 
according  to  the  report  of  about  14,000,000  horse-power. 

He  attempts  primarily  to  show  monopoly  or  concen- 
tration of  public  service  power  by  certain  corporations, 
and  then  to  show  that  these  corporations  are  interrelated, 
the  evidence  being  that  some  of  them  have  one  or  more 
directors  or  principal  officers  who  are  also  directors  or 
officers  in  other  corporations  on  his  list. 

His  statements  regarding  concentration  of  control 
of  electrical  power  development  will  first  be  examined. 
He  says  (Part  I,  p.  14)  : 

"If  inquiry  is  made  into  the  control  by  certain 
corporations,  it  is  found  that  85  public-service 
corporations,  through  ownership  of  properties, 
majority  of  ownership  of  stock,  lease,  or  direct 
management,  control  68.6  per  cent,  of  the  total 
public-service  power  in  the  United  States;  35  of 
these  85  control  one-half  of  the  total ;  16  control 
one-third;  and  10  control  one-fourth.  Of  these  85 
corporations,  59  have  water  power  developments; 
and  of  these  59,  18  control  2,356,521  water  horse- 
power, or  more  than  one-half  of  the  total  water 


i;  i-  . 


61 


power  used  in  public-service  operations  in  the 
United  States.  Of  these  18  corporations,  9  con- 
trol more  than  one-third  of  the  total  and  6  more 
than  one-fourth." 

This  is  further  elaborated  on  pages  58  and  59  of  Part 
I  as  follows : 

'^United  States — At  the  end  of  the  summarv 
tables  is  given  a  list  of  the  87  corporations  each 
of  which,  according  to  the  data  given  in  the  de- 
tailed sheets,  controls  not  less  than  30,000  horse- 
power of  primary  power.  Two  companies  con- 
tained in  the  list,  the  International  Paper  Co.  and 
the  Union  Carbide  Co.,  are  engaged  in  manufactur- 
ing. The  remaining  85  are  public-service  corpora- 
tions, these  87  corporations  control  3,496,423 
water  horse-power  and  6,275,092  steam  and  gas 
horse-power,  a  total  of  9,771,515  horse-power,  or 
65.8  per  cent,  of  the  total  listed  for  the  United 
States.  If  the  two  manufacturing  concerns  are 
eliminated  and  the  amount  of  manufacturing 
power  contained  in  the  tables  is  substracted  from 
the  total,  the  85  concerns  remaining  control  68.5 
per  cent,  of  the  total  public-service  power  in  the 
United  States." 

It  is  necessary  to  examine  the  list  in  order  to  deter- 
mine whether  it  shows  "concentration"  of  electric  power 
development  as  the  report  asserts. 

Included  in  the  list  are  the  Commonwealth  Edison 
Company  of  Chicago  which  the  report  says  controls 
3.44  per  cent,  of  the  primary  power  used  in  public  service 
operations.  This  company  has  four  central  stations.  It 
lights  Chicago.  It  has  no  water  power.  It  is  a  large 
concern  but  its  operations  show  no  "concentration"  of 
power  control,  unless  the  reference  is  to  local  con- 
centration for  service  in  a  given  vicinity.  Local  con- 
centration of  course  exists  everywhere  because  public 


J 


62 


63 


utility  service  is  universally  recognized  as  a  natural 
monopoly  in  given  localities  and  as  such  is  both  regulated 
as  to  rates  and  service  and  protected  from  indiscriminate 
and  wasteful  competition  by  the  laws  of  most  of  the 
states  of  the  Union. 

The  same  may  be  said  of  the  Consolidated  Gas  Com- 
pany of  New  York.  The  report  says  it  controls  3.25  per 
cent,  of  the  total  primary  power  used  in  public  service 
operations.  It  is  a  large  company,  but  its  extent  has  no 
bearing  on  the  "concentration"  Mr.  Merrill  seeks  to 
prove.  The  same  is  true  of  the  lighting  companies  of 
Philadelphia,  Indianapolis,  etc.,  included  in  the  list. 

Another  group  whose  extensive  operations  can  have 
no  possible  bearing  on  the  concentration  the  report 
seeks  to  prove  is  made  up  of  companies  included  in  his 
list  which  make  and  use  electric  power  as  incidental  to 
furnishing  transportation  service.  Among  these  taken 
from  the  list  are  the  Interborough-Metropolitan  Company 
of  New  York  which  operates  the  subways,  surface  cars 
and  elevated  service  in  Manhattan  and  the  Bronx,  and 
the  Brooklyn  Kapid  Transit  Company  similarly  situated 
in  Kings  County.  The  Interborough,  the  report  says, 
controls  1.67  per  cent,  of  the  total  primary  power  used 
in  public  service  and  the  Brooklyn  Rapid  Transit  Com- 
pany 1.33  per  cent.  They  are  large  companies,  doing  an 
extensive  business  but  they  have  nothing  to  do  with 
power  "concentration".  The  same  can  be  said  of  the 
Boston  Electric  Railways  Company  (.85  per  cent,  ac- 
cording to  Mr.  Merrill),  Philadelphia  Rapid  Transit 
Company  (.71  per  cent.),  New  York,  New  Haven  &  Hart- 
ford Railroad  Company  (.71  per  cent.),  New  York  Cen- 
tral &  Hudson  River  R.  R.  Co.  (.63  per  cent),  Pennsyl- 
vania Railroad  Company  (.58  per  cent.)  and  numerous 
other  traction  concerns  included  in  Mr.  Merrill's  list. 


Another  group  which  he  includes  in  his  list  whose 
operations  can  have  no  bearing  on  the  concentration  he 
seeks  to  prove  are  such  manufacturing  concerns  as  the 
International  Paper  Company,  the  Aluminum  Company 
of  America,  the  Union  Carbide  Company  and  others. 

From  the  foregoing  it  is  apparent  that  Mr.  Merrill 
has  jumbled  together  certain  facts  of  common  knowledge 
and  asserted  that  they  prove  his  theme,  when  in  fact  they 
prove  nothing  of  the  sort.  The  operations  of  the  com- 
panies named  do  not  show  "concentration"  in  any  sense 
whatever;  they  show  size  and  consuming  power. 

The  eighty-five  leading  cities  of  the  United  States  con- 
tain 54.2  per  cent,  of  the  total  urban  population  of  the 
United  States,  more  than  one-half;  thirty-five  contain 
43.5  per  cent.;  16  contain  34.1  per  cent,  and  10  contain 
29  per  cent.  The  percentages  are  strikingly  similar  to 
those  in  Mr.  Merrill's  table  showing  percentages  of  con- 
trol by  leading  companies  of  public  service  power.  If 
suburban  population  were  included  the  percentages  would 
be  substantially  identical  with  the  power  percentages 
given  by  Mr.  Merrill.  This  fact  that  the  percentages  so 
nearly  correspond  to  those  in  Mr.  Merrill's  table  of  power 
"concentration"  is  exceedingly  significant.  He  has  noted 
certain  facts  which  indicate  nothing  as  to  "concentra- 
tion of  power  control"  but  which  do  show  two  things: 
First  (what  everybody  in  the  electrical  industry  knows), 
that  there  is  a  natural  relation  between  population  and 
electrical  power  demand ;  and,  second  ( what  every  econo- 
mist and  most  laymen  know),  that  public  utility  enter- 
prises in  particular  centers  are  natural  monopolies. 

No  monopoly  of  primary  power,  nor  of  water  power, 
is  in  the  slightest  degree  indicated  by  the  data  presented 
by  Mr.  Merrill.  No  such  monopoly  exists,  nor  has  any 
such  monopoly  been  attempted.     If  attempted  it  would 


; 


64 


fi 


Im 


nl\ 


necessarily  fail,  because  the  sources  of  power  are  too 
generally  accessible  and  too  numerous  and  varied.  Gen- 
eration of  electricity  in  isolated  plants  would  always  be 
available  to  meet  a  monopoly  of  electrical  power  supply. 
The  United  States  Census  of  Manufactures  for  1914 
contains  data  showing  the  enormous  increase  of  pro- 
duction of  electric  power  in  isolated  plants  (which  how- 
ever Mr.  Merrill  ignores  in  his  report).  The  figures  are 
given  in  the  following  table: 

H.  P.  OF  Electric  Motors  Employed  in  Manufactures. 

Increase 
1904  1914      1904  to  1914 

Kun  by  rented  power 182,562    3,910,417    3,727,855 

Run  by  current  generated  in  the 
manufacturing  establishments..     310,374    4,926,227    4,615,853 


492,936     8,836,644     8,343,708 

It  is  interesting  and  significant  that  the  total  of  elec- 
trical power  so  indicated  by  the  census  of  1914  as  then 
produced  in  isolated  manufacturing  plants  alone  was 
greater  than  the  entire  product  of  water  power  through- 
out the  country  in  1915,  as  stated  by  Mr.  MerrilFs  report. 
Wherever  coal,  oil,  or  other  fuel  for  power  purposes  can 
be  secured — which  is  everywhere  in  this  country — there 
is  a  direct  and  final  denial  of  the  possibility  of  a  power 
monopoly.  Public  service  corporations  market  large 
units  of  power  only  where  they  make  rates  lower  than 
the  cost  of  production  of  power  by  individual  users. 
This  is  efficient  service,  not  harmful  monopoly. 

The  Census  Bureau  Report  of  1912  said  (page  111)  : 

"The  interesting  fact  develops  in  connection 
with  this  greater  increase  of  electric  service  to  the 
public  that  its  cost  has  steadily  decreased  during 
the  census  period  referred  to,  while  the  cost  of  liv- 


65 


ing  has  steadily  increased.  A  typical  example 
may  be  cited  from  the  statistics  of  Massachusetts, 
between  1904  and  1912,  ^based  upon  the  reports  of 
the  State  Board  of  Gas  &  Electric  Light  Commis- 
sioners, which  shows  that  while  in  the  seven  years 
the  cost  of  living,  predicated  upon  current  market 
prices,  had  risen  37  per  cent.,  the  rates  for  elec- 
tricity had  been  reduced  about  17  per  cent'  In 
other  words,  while  the  cost  of  food,  coal,  shoes, 
household  equipment,  etc.,  had  increased  over  one- 
third  in  the  seven  years,  the  cost  to  the  public  of  a 
very  large  proportion  of  its  light  and  power  fur- 
nished by  public  utilities  had  been  lowered  one- 
sixth." 

Another  fact  which  the  report  does  not  mention,  but 
which  is  set  forth  in  the  Electrical  Census  of  1912  tends 
to  contradict  the  whole  theory  of  concentration.  This 
fact  is  the  steady  increase  in  the  number  of  central  sta- 
tions. Previous  to  1912  the  Census  Bureau  enumerated 
each  central  station  plant  as  an  individual  central  sta- 
tion, no  matter  by  whom  it  was  owned  or  controlled,  but 
in  compiling  the  census  of  1912  the  practice  was  changed, 
as  stated  by  the  following  extract  from  the  census 
bulletin : 

"When  a  number  of  plants  were  operated  under 
the  same  ownership,  it  often  was  impracticable  to 
secure  a  separate  report  for  each  and  therefore  a 
single  report  was  made  to  cover  the  operations  of 
all  and  they  were  counted  as  one  plant." 

The  adoption  of  this  method  resulted  in  public  utility 
companies  which  owned  several  generating  plants  located 
within  tlie  same  State  usually  being  accredited  with  the 
ownership  or  control  of  but  one  station.  Naturally  the 
new  practice  caused  the  census  of  1912  to  show^  relatively 
a  small  increase  in  the  number  of  electric  central  stations 


/ 


if 
■J 


66 


and  tlie  tendency  is  thus  not  fully  indicated;  but  the 
figures  are  striking  in  any  event.    They  are : 


Year. 

1902 
1907 
1912 


Total  Central  Stations. 

3,620 
4,714 
5,221 


Thus  the  number  of  central  stations  increased  by 
1,601  in  the  ten  years  from  1902  to  1912,  and  this  show- 
ing is  made  in  spite  of  the  changed  policy  of  the  Census 
Bureau. 

If  Mr.  Merrill's  figures  for  1915  are  correct  the  in- 
crease since  1912  is  still  more  striking.  He  gives  the 
total  number  of  central  stations  for  1915  as  6,939,  an 
increase  of  1,718  since  1912.  He  does  not,  however, 
comment  on  the  effect  of  these  figures  on  his  theory  of 
concentration,  which  they  obviously  tend  to  disprove. 

Mr.  Merrill  also  endeavors  to  show  "concentration''  in 
the  electrical  industry  by  the  familiar  method  of  ascrib- 
ing interconnection  to  corporations  having  one  or  more 
"common  directors".  He  thus  describes  his  efforts  (Page 
59,  Part  I)  : 

"A  study  of  the  interrelation  of  the  various 
public  utility  electric  corporations  with  each  other 
through  common  directors  or  principal  officers 
leads  one  into  an  almost  endless  maze  of  inter- 
connections. It  is  extremely  difficult  to  correlate 
the  mass  of  information  and  to  determine  in  many 
instances  whether  a  particular  company  has  the 
closer  association  with  one  or  another  group  of 
interests.  In  studying  the  extent  of  such  inter- 
relationships the  chief  source  of  information  has 
been  Moody's  Manual  of  Corporations,  1914.  The 
1915  edition  was  not  available  at  a  sufficiently 
early  date  to  permit  of  its  use  in  this  line  of  in- 
vestigation. The  relations  shown  therefore  unless 
otherwise  noted  are  those  existing  in  1914.     It 


67 


has  not  been  possible,  of  course,  even  had  it  been 
desirable,  to  verify  the  data  as  presented  in  the 
several  corporation  manuals.  The  standing  which 
they  have  and  the  presumption  that  all  the  infor- 
mation which  they  contain  has  been  furnished  by 
the  corporations,  the  activities  of  which  are  de- 
scribed, would  seem  to  make  further  verification 
unnecessary.  The  accuracy  of  the  data  herein 
presented  is  dependent  therefore  upon  the  accu- 
racy of  tlie  source  from  which  they  have  been 
derived. 

In  Table  1,  Part  III,  is  given  in  alphabetical 
order  a  list  of  ^ome  1,500  corporations  engaged  in 
the  power  business,  under  each  of  which  is  listed, 
also  in  alphabetical  order,  both  the  power  corpora- 
tions and  the  banking  corporations  with  which  it 
is  affiliated  through  principal  officers  or  common 
directors.  The  list  gives  also  the  total  number  of 
principal  officers  and  directors  in  each  corpora- 
tion and  the  number  common  to  such  corporations 
and  every  other  affiliated  corporation.  The  prin- 
cipal officers  considered  are  the  president,  vice- 
president,  secretary  and  treasurer,  but  such  offi- 
cers have  not  been  counted  a  second  time  if  thev 
serve  also  as  directors.  There  is  also  given  in 
Table  2,  Part  III,  a  list  in  alphabetical  order  of 
2,172  directors  and  principal  officers  common  to 
two  or  more  of  the  corporations  studied  and  under 
each  director  or  principal  officer  a  list  both  of  the 
power  corporations  and  of  the  banking  corpora- 
tions in  which  he  serves.  These  two  lists  serve 
as  the  fundamental  data  for  this  section  of  the 
report." 

Part  III  of  the  report,  wliich  is  a  volume  of  some- 
thing more  than  500  pages,  including  numerous  charts, 
is  entirely  devoted  to  the  subject  of  supposed  interrela- 
tion between  corporations  engaged  in  the  production  of 
power.  About  150  pages  are  taken  up  with  lists  of  cor- 
porations with  the  supposedly  affiliated  corporation 
printed  underneath.     By  this  means  each  corporation  is 


/ 


68 


i 


made  to  do  service  many  times.  For  illustration:  The 
first  corporation  in  the  list  is  the  Adams  Gas  Light  Com- 
pany of  Massachusetts,  a  local  company,  owned  by  the 
Massachusetts  Lighting  Companies.  The  Massachusetts 
Lighting  Companies  is  a  holding  company,  with  numerous 
other  properties,  on  the  boards  of  which  it  naturally  has 
representation.  In  many  cases  the  same  individual  rep- 
resents it  on  several  boards.  Thus,  under  Mr.  Merrill's 
system,  most  of  the  companies  owned  or  controlled  by 
the  Massachusetts  Lighting  Companies  are  listed  as  affili- 
ated with  the  Adams  Gas  Light  Company.  In  this  par- 
ticular case  there  are  sixteen  such  companies.  Each 
company  later  appears  on  the  list  as  the  principal  com- 
pany whose  affiliations  are  to  be  shown,  and  underneath 
the  list  of  sixteen  is  duplicated.  By  this  means  each 
company  appears  in  the  list  at  least  sixteen  times  and 
the  sixteen  together  do  service  in  the  list  256  times.  In 
all  a  little  less  than  1,500  corporations,  are  represented 
in  lists  containing  with  repetitions  and  duplications 
about  22,000  companies. 

The  list  is  introduced  with  an  explanatory  statement, 
the  opening  paragraph  of  which  is  as  follows : 

"Each  company  named  in  the  following  tabu- 
lation is  directly  or  indirectly  related  to  every 
other  company,  such  relationship  occurring 
through  common  directors  or  principal  officers,  or 
through  lease,  stock  ownership,  or  some  other 
form  of  control.  As  far  as  information  is  avail- 
able, the  tabulation  shows  the  manner  and  extent 
of  relationship.  In  many  cases  the  relationship  is 
indirect  and  also  remote." 

About  100  pages  more  are  taken  up  with  a  list  of  about 
2,200  persons  who  are  principal  officers  or  directors  of 
more  than  one  public  utility  corporation  or  industrial 
corporation  owning  water  power.    This  list  was  compiled 


69 


it ' 


from  the  principal  manuals  dealing  with  such  matters. 
No  list  is  given  of  the  principal  officers  and  directors  of 
public  utility  corporations,  etc.,  who  serve  only  one  com- 
pany. Such  a  list  would  contain  about  20,000  additional 
names  and  could  have  been  compiled  from  the  same 
sources. 

The  remainder  of  Part  III  is  taken  up  with  diagrams 
and  charts  intended  to  show  in  a  graphic  manner  in- 
terrelation between  public  utility  companies,  particu- 
larly holding  companies,  resulting  from  the  presence 
on  their  boards  of  one  or  more  common  directors  or 
principal  officers.  The  method  of  showing  interrelation 
between  the  principal  holding  companies  is  illustrated 
by  the  first  chart  (Part  III,  page  245).  A  relationship 
between  W.  S.  Barstow  &  Company  and  The  J.  G.  White 
Management  Company  is  attempted  to  be  indicated. 
Four  of  the  directors  of  W.  S.  Barstow  &  Company  are 
also  directors  of  the  General  Gas  &  Electric  Company 
of  Maine.  These  are  W.  S.  Barstow,  J.  B.  Taylor,  C.  G. 
White,  Jr.,  and  L.  B.  Tyng.  Another  director  of  the 
General  Gas  &  Electric  Company  of  Maine  is  A.  L. 
Kramer.  Mr.  Kramer  is  also  a  director  of  The  J.  G. 
White  Management  Company.  From  this  and  another 
similar  instance  Mr.  Merrill  apparently  concludes  that 
W.  S.  Barstow  &  Company  and  The  J.  G.  White  Manage- 
ment Company  are  "affiliated".  This  is  the  kind  of  re- 
lationship he  elsewhere  speaks  of  as  representing  "poten- 
tial control".  Whether  W.  S.  Barstow  &  Company  have 
"potential  control"  of  The  J.  G.  White  Management  Com- 
pany through  Mr.  Kramer's  membership  in  the  board  of 
the  General  Gas  &  Electric  Company  of  Maine  or 
whether  the  "potential  control"  is  the  other  way  around 
Mr.  Merrill  does  not  indicate. 

The  whole  attempt  to  show  interrelations  through  the 
circumstance  noted  is  of  course  utterly  absurd.    A  simple 


70 


h 


explanation  would  be  that  The  J.  G.  White  Management 
Company  has  a  minority  interest  in  the  General  Gas 
&  Electric  Company  of  Maine  and  is  thus,  under  the 
most  ordinary  business  methods,  represented  on  its  board. 
It  is  well  known  that  the  two  principal  concerns  men- 
tioned, W.  S.  Barstow  &  Company  and  The  J.  G.  White 
Management  Company  ai*e  wholly  independent  of  each 
other,  are  engaged  in  the  business  of  owning  and  man- 
aging public  utility  properties,  and  are  frequently  com- 
petitors in  the  purchase  of  properties  and  in  securing  for 
the  regions  their  companies  serve  the  location  of  power 
using  industries. 

This  illustration  is  taken  because  it  is  the  first  on  the 
list  of  diagrams.  Similar  analyses  could  be  made  in 
every  case  where  an  attempt  is  made  to  show  interrela- 
tion between  the  large  holding  and  managing  companies. 

The  "common  director"  method  of  showing  "concen- 
tration" is  outworn.  Congress  has  dealt  with  the  subject 
in  the  Clayton  Act,  in  so  far  as  interstate  business  is 
affected.  If  2,000  or  more  directors  appear  on  more  than 
one  board,  what  of  the  20,000  or  more  each  of  whom  de- 
votes all  his  energies  to  one  company  only?  How  does  it 
come  about  that  the  2,000  control  the  20,000?  The  fact 
is  of  course  the  small  minority  does  not  control  the  large 
majority.  A  "common  director"  often  represents  the 
desire  of  a  company  to  secure  as  a  representative  on  its 
board  some  man  of  particular  experience,  particular  skill, 
particular  financial  resource  or  particular  standing  in 
the  community  or  business  world.  Minority  interests 
without  a  particle  of  "control"  are  frequently  so  repre- 
sented, as  are  the  owners  of  first  or  second  mortgage 
bonds.  The  function  of  a  "common  director"  generally 
is  not  to  "control"  but  rather  to  safeguard  as  opportunity 
offers  the  interests  he  represents  against  possible  invasion 
by  those  who  do  control.     These  are  facts  of  ordinary 


f.WN 


71 

business  experience.  No  "conclusions"  can  be  drawn  in 
any  particular  case  from  the  presence  of  a  common  direc- 
tor and  the  case  does  not  become  any  stronger  by  lump- 
ing them  together  in  a  table  or  list  or  diagram. 

Mr.  Merrill  in  his  search  for  evidences  of  "centrali- 
zation of  power  control",  has  misinterpreted  the  plain 
and  well  known  facts  of  the  public  utility  business  under 
modern  organization.  Some  of  the  facts,  briefly  stated, 
are  as  follows: 

1.  The  growth  of  the  public  utility  business  has  been 
constant  and  rapid.     In  1902  the  investment  in  electric 
light  and  power  pUints  was  |500,740,352 ;  in  1907  this 
had  increased  to  };l,090,913,622 ;  in  1912  to  |2,175,678,266, 
more  than  four  times  the  investment  in  1902  and  twice 
the  investment   in   1907.      Similarly   the  investment   in 
street   and  electric    railway   properties    increased    from 
$2,308,282,099  in  1902  to  |4,708,568,141  in  1912.     The 
present  figures  if  available  would  undoubtedly  show  an 
investment  in  electric  light,  power  and  street  railway 
properties  in  excess  of  $8,000,000,000.     This  enormous 
growth  has  been  due  to  the  constant  demand  in  the  popu- 
lation centers  for  more  and  better  service.     Part  of  the 
growth  has  also  been  due  to  the  ability  of  public  utility 
concerns  to  furnish  power  for  industrial  uses  below  the 
cost  of  power  produced  by  individual  power  plants.    The 
growth  of  the  public  utility  business  is  continuing  un- 
diminished, greatly  to  the  advantage  of  the  country,  add- 
ing to  the  comfort  and  convenience  of  the  communities 
served,  relieving  congestion  of  population,  cheapening 
production  where  power  is  a  large  factor,  and  providing 
a  profitable  field  of  investment  for  security  holders,  small 
and  large,  numbering  many  hundreds  of  thousands  and 
scattered  throughout  this  and  foreign  countries. 


/ 


72 


2.  Public  utilities  are  natural  monopolies  in  the 
regions  served  and  are  recognized  and  regulated  as  such. 
Experience  has  taught  that  the  usual  result  of  competi- 
tive service  is  duplicated  capital  upon  which  the  public 
is  almost  inevitably  compelled  directly  or  indirectly  to 
pay  a  return.  It  has  thus  come  to  be  a  matter  of  common 
acceptance  that  monopoly  in  public  utility  service  is  not 
to  be  condemned  but  is  in  fact  desirable  if  properly  regu- 
lated. In  very  many  states  public  utility  monopolies  in 
localities  are  now  protected  by  laws  prohibiting  the  grant- 
ing of  competing  franchises  unless  the  public  necessity 
therefor  is  certified  by  some  competent  and  impartial 
body.  In  administering  such  laws  the  public  utility  com- 
missions have  fully  recognized  public  utilities  as  natural 
monopolies  and  have  refused  to  grant  such  certificates 
unless  the  showing  of  public  requirement  amounts  to 
demonstration.  These  laws  and  their  administration 
have  been  generally  upheld  by  public  opinion.  Better 
service  has  resulted  and  improvements  otherwise  unat- 
tainable have  been  secured  as  a  result  of  the  greater 
stability  of  the  investment  protected  from  unwarranted 
raids  and  invasion. 

3.  The  demand  for  improved  public  utility  service 
has  rendered  necessary  great  changes  in  the  methods  of 
organizing  and  financing  public  utilities.  This  has  been 
imperative  because  of  the  constant  demand  for  new 
money  for  additions  and  extensions  in  order  efficiently 
to  serve  the  public.  It  has  been  estimated  that  the  elec- 
tric light  and  power  business  and  allied  industries  alone 
require  $400,000,000  a  year  of  new  capital  in  order  to 
keep  pace  with  the  demand  for  improved  service.  Such 
sums  are  of  course  only  to  be  found  in  the  general  in- 
vestment markets.  But  small  isolated  companies  are 
unfitted  to  enter  this  field  except  at  prohibitive  interest 


73 


rates.  Organization  into  larger  groups  has  solved  the 
difficulty  by  creating  a  diversified  investment  able  to  pro- 
cure capital  at  greatly  reduced  rates.  An  important 
element  of  the  cost  of  public  utility  service  is  the  cost 
of  money ;  and  that  cost  whatever  it  may  be  must  be  con- 
sidered and  allowed  by  public  service  commissions  in 
fixing  rates.  The  public  therefore  pays  the  bill  and  con- 
sequently large  concerns,  with  diversified  interests,  con- 
tribute directly  and  emphatically  to  the  public  welfare 
when  by  modern  systems  of  organization  they  reduce  the 
interest  charges  which  the  consumer  pays  on  the  neces- 
sary investment. 

At  the  present  time  out  of  a  total  of  about  eight  bil- 
lions of  dollars  invested  in  electric  light  and  power,  gas, 
and  traction,  nearly  six  billions  are  organized  in  groups 
whose  security  issues  are  suitable  for  distribution  to  gen- 
eral investors  all  over  the  world.  This  grouping  of 
utility  properties  is  the  contribution  of  the  financier  to 
the  upbuilding  of  the  volume  and  quality  of  public  utility 
service  to  meet  the  demand  of  the  American  people  for 
high  class  accommodations  in  their  cities.  Without  this 
contribution  progress  would  have  been  impossible. 

The  transition  from  old  and  unsatisfactory  financing 
has  been  rapid.  The  position  of  the  holding  company  in 
the  public  utility  business  is  altogether  different  from 
that  of  the  holding  company  in  other  fields  where  com- 
petition is  a  factor.  Objections  to  the  latter  obviously 
do  not  apply  where  monopoly  of  service  centers  is  ac- 
cepted and  desirable  and  where  regulation  of  rates  and 
service  takes  the  place  of  competition  in  insuring  against 
laxity  of  service  or  exorbitant  charges. 

4.  Public  utility  enterprises  have  utilized  a  large  per- 
centage of  existing  water  power  development  because 
their  power  needs  are  insistent  and  their  ability  to  finance 


74 


under  difficulties  created  by  inadequate  water  power  laws 
has  been  relatively  greater  than  less  settled  enterprises. 

These  simple,  well-known  facts  of  the  public  utility 
business  explain  the  data  which  Mr.  Merrill  has  presented 
though  they  lead  to  a  far  simpler  and  less  sensational 
interpretation  than  that  which  he  has  placed  upon  them. 


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LIBRARY 

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INTENTIONAL  SECOND  EXPOSURE 


74 


under  difficulties  created  by  inadequate  water  power  laws 
has  been  relatively  greater  than  less  settled  enterprises. 

These  simple,  well-known  facts  of  the  public  utility 
business  explain  the  data  which  Mr.  Merrill  has  presented 
thougii  they  lead  to  a  far  simpler  and  less  sensational 
interpretation  than  that  which  he  has  placed  upon  them. 


ei8w 


FROFERTY  CF  TKE 


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LIBRARY 

NEW  YORK  CITY 


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156  Pulton  8t..  N.  Y. 


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